China Newsletter - What's New in IP in China - March 2021

China Newsletter March 2021

What’s new in IP in China?

In this edition we take a look at geographical indications (GIs), the new EPO-CNIPA PCT pilot programme as well as the Laidian v. Ankerbox infringement case. We also summarise the key changes brought by the new amendments for the China Patent Law coming into force on 1 June 2021.

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Key Points of the New Amendments to the Chinese Patent Law China’s National People’s Congress approved the amendments for the China Patent Law on 17 October 2020, which will come into force on 1 June 2021. This is the fourth time the Chinese patent law has been revised, and the amendments contain significant changes of the patent system in China.

By Kirwin Lee Introducing Punitive Damages The new amendments also introduce the possibility of up to five times of the original damages (based on the losses incurred to the patentee, the profits gained by the defendant, or multiples of reasonable patent royalties for the patent in question) as punitive damage in cases of serious willful patent infringement.

The introduction of punitive damages is expected to provide a strong deterrent for intentional and incessant patent infringers.

Shifting Evidence Disclosure Obligation to Defendants The latest revisions aim to address three key aspects: to strengthen the protection of the legal rights and interests of patentees, to promote the implementation and use of patents, and to improve the patent examination system. We have summarised below several key changes brought by these amendments.

(1) Strengthened Protection of Patentee Rights (General) Increasing Statutory Damages According to the new Patent Law, the maximum amount of statutory damages that can be awarded to a patentee has been increased from RMB 1m to 5m (~ GBP 567k), and the minimum amount has been increased from RMB 10,000 to 30,000. This is favourable news for patentees, as for a majority of successful patent infringement cases statutory damages are granted instead of actual damages or an account of profits, partially due to the difficulties in providing loss or profit (or royalties).

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As mentioned above with respect to statutory damages, it can be difficult to prove damages in patent infringement proceedings, sometimes due to the unwillingness of the defendant to provide financial documentation. Under the new Patent Law, a court can order the defendant to disclose financial evidence related to the calculation of damages. If the defendant refuses to comply, the judge has discretion to determine damages based on claims and evidence submitted by the patentee.

(2) Increased Protection for Design Patents Protection of Partial Designs The concept of “partial designs” is formally introduced by way of the new amendments. This provides applicants with much more freedom and flexibility in design protection, as certain design features can be protected more conveniently without being restricted by commonplace features existing in the

Haseltine Lake Kempner | China Newsletter March 2021

same product.

This change brings the Chinese system in line with the design protection practice offered in many other jurisdictions, such as in Europe and the UK. We can certainly expect a consequential rise in design filing numbers following this change.

Extension of Design Patent Term The term for design patent protection has been extended from 10 years to 15 years. It is believed that this new provision signifies that China is prepared to join the Hague Agreement, which stipulates a minimum of 15 years protection term for member countries.

(3) Increased Protection for Pharmaceutical Patents Patent Linkage System The amended Patent Law introduces a patent linkage system which aims to allow early resolution of patent disputes between patentees and generic companies during the drug review and approval process. According to the amendments, a patentee can bring a patent infringement dispute before the court or the local patent administrative office if they believe the subject matter of a drug market authorisation application falls within the scope of the patent. The National Medical Products Administration (i.e.

China’s pharmaceutical regulatory body) can decide on whether to suspend the regulatory approval process based on the effective judgement from the court or local patent administrative office.

Patent Term Extension and Adjustment In order to compensate for delays caused by the long regulatory approval period, with the amended Patent Law it will be possible to obtain patent term extensions for pharmaceutical patents. Upon request by the patentee, a compensation term may be granted for a patent covering a new drug that has been approved to be put on the market, for a maximum of 5 years. The total effective patent term after the new drug is approved shall not exceed 14 years.

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“This amendment appears to be a swift response to the current situation surrounding COVID-19” (4) Other Noteworthy Changes New Exceptional Condition for Novelty Grace Period The amended Patent Law adds “[a] first disclosure for the purpose of public interest in the event of a state of emergency or an extraordinary situation in the country” as one of the exceptional circumstances under “disclosures not causing loss of novelty”.

This amendment appears to be a swift response to the current situation surrounding COVID-19, as it was specifically proposed to “meet the current needs of fighting the pandemic” (COVID-19), more particularly to “better respond to emergencies and extraordinary situations such as epidemic prevention and control” and “promote the timely application of related inventions and creations in disease treatment”.

Patent Term Extension due to Delays in Examination The new amendments further enable CNIPA to adjust the term of a patent to compensate for unreasonable delays in the patent examination process, at the request of the patentee. This adjustment is possible only if the patent is granted after at least four years from the filing date, and at least three years after the filing of the request for substantive examination.

Implementation of Open License Under the new patent open license system, a patentee can declare their intention to “openly license” their patents to any interested party with the CNIPA, as well as set the license fees and terms for public records. To encourage participation in the open license system, annual fees will be reduced or waived during the license period. This change aims to improve the commercialisation rate of granted patents in the country and to increase the efficiency of patent licensing processes.

Haseltine Lake Kempner | China Newsletter March 2021

EPO-CNIPA New PCT Pilot Programme From 1 December 2020, Chinese PCT applicants were given the option to select the EPO as their International Searching Authority (ISA). According to the joint communiqué published on the EPO website, this scheme will be implemented as a two-year pilot programme. It is envisioned that this programme will enable Chinese applicants to optimise their international patent strategy, especially when considering protection in Europe.

By Kirwin Lee Eligibility Before 1 December, the CNIPA was the only competent ISA for international (PCT) patent applications that are filed at the CNIPA as Receiving Office.

Under the new pilot programme, nationals and residents of the People’s Republic of China filing international patent applications in English with CNIPA as the Receiving Office are able to select the EPO, in addition to CNIPA, as the competent ISA. Advantages of choosing the EPO over the CNIPA as ISA Chinese applicants opting the EPO as ISA receive a search report and written opinion issued by an EPO examiner during the international phase of the PCT application. This information proves useful for the applicants in deciding whether to enter the European regional phase as well as managing their expectations in terms of the likelihood of allowance at the EPO. Furthermore, by choosing the EPO as ISA, the application can be accelerated by directly proceeding to examination on entry into the European regional phase without requiring a supplementary search to be performed, thus gaining up to one year by entering into the European phase earlier.

Advantages of filing a PCT application at the CNIPA in English rather than Chinese 4

In order for an applicant to be able to select the EPO as ISA, it appears necessary to file their international patent application at the CNIPA as the Receiving Office in English.

Although filing in English may not be a particularly appealing option for Chinese applicants, especially for those who already file and prosecute international applications at the CNIPA in Chinese, this option may be beneficial for patent applications that are intended to be enforced in English speaking jurisdictions due to the relevant language requirements with regard to publication.

This is due to the fact that in a number of jurisdictions (such as the UK), certain rights are conferred on the publication of a patent application in a national language. For example, it would be possible to seek damages dating back to the earliest date of publication of the patent application for a granted UK patent, given that the earliest publication of the patent application was in English.

As this also applies to granted UK patents that are derived from international patent applications that were published in English, applicants may want to ensure that the international patent applications were filed and published in English so that any rights conferred on publication in English-speaking countries are available from the earliest date possible.

In cases where the international patent application claims priority from an

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“Chinese applicants opting the EPO as ISA receive a search report and written opinion issued by an EPO examiner during the international phase of the PCT application. ” earlier filed Chinese national patent application, both the Chinese national patent application and the international patent application would be published around the same time respectively in Chinese and English, provided that the earlier filed Chinese national application is pursued concurrently with the international application. Thus, there may also be additional benefits in that relevant rights are conferred at an early stage of the application process for both languages.

How can non-Chinese applicants benefit from the programme Under Chinese patent law, inventions that are made in China are subject to a confidentiality examination before filing any foreign applications. To fulfill such requirements, applicants could request a confidentiality examination by filing a Chinese national patent application in Chinese, or submit a description of the invention to the CNIPA in Chinese prior to the foreign filing. However, the language requirements associated with these options may seem restrictive or undesirable, especially for non-Chinese 5

applicants whose main operations are unlikely to be conducted in Chinese. Also, for the latter option, the preparation of the Chinese description and the confidentiality examination could cause unwanted delays in terms of foreign filings.

Another option to satisfy the confidentiality requirements is to file an international patent application at the CNIPA as Receiving Office, as this would be deemed to include a request for the confidentiality examination.

Since the new programme makes it possible for applicants to file an international patent application in English at the CNIPA office as Receiving Office, non-Chinese applicants who have collaborated with China-based inventors on inventions that are made in China also benefit from the new scheme, thereby avoiding having to compromise in terms of language restrictions and filing timeframe. It is important to note that in order for the CNIPA to be a competent Receiving Office, it is mandatory to name at least one Chinese applicant on the international patent application for at least one PCT member state. Where the CNIPA is not a competent Receiving Office, the application is forwarded to the international bureau where no confidentiality examination will be performed.

Haseltine Lake Kempner | China Newsletter March 2021

Geographical Indications – A Step Towards Harmonisation Geographical indications (GIs) are a type of intellectual property right that provide protection for many well-known goods including foodstuffs, beverages, handicrafts, and industrial products. Geographical indications are indications, such as a sign used on a product, which identify the product as originating from a specific geographical origin, where the product possesses a quality or a reputation due to that origin1.

By Nick Davies Some well-known examples of European GIs include Stilton cheese, Champagne, and Swiss watches while some wellknown examples of Chinese GIs include Pixian Dou Ban, Anji Bai Cha, and Anqiu Da Jiang. GIs can be a powerful tool, which can be used to prevent acts of unfair competition by allowing those that have the right to use a GI to take measures against those using a GI without permission, such as preventing the use of any means in the designation or presentation of a product that indicates or suggests that the product in question originates in a geographical area other than the true place of origin1,2.

On 14 September 2020, the EU and China entered into a bilateral agreement, which is expected to come into force imminently (i.e. at the start of 2021), protecting 100 European GIs in China and 100 Chinese GIs in the EU against imitation and usurpation, the agreement being the first of its kind on this scale3.

In recent years, exports of EU goods to China and exports of Chinese goods to the EU have been steadily increasing, with China being the EU’s third-largest export market (€14.5 billion), and China the EU’s fifth largest import market (€5.3

billion), for agricultural goods in 2019, which the bilateral agreement relating to GIs could boost further4.

Looking forward, the agreement contains a provision that will lead to an additional 175 GIs from each of the EU and China being added to the existing GIs covered by the agreement over the next four years, with the possibility of more GIs being added following the end of that period. In terms of enforcement of GIs, GI holders will have the right to request an enforcement action and to seek judicial enforcement independently, with a Joint Committee being tasked with monitoring

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Frequently Asked Questions: Geographical Indications (wipo.int)

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TWTO | intellectual property (TRIPS) – agreement text – standards

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EU-China geographical indications agreement (europa.eu)

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deal on geographical indications “historic” – Paris – France in the United Kingdom – La France au Royaume-Uni (ambafrance.org)

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Haseltine Lake Kempner | China Newsletter March 2021

the implementation of the agreement3.

In summary, the aforementioned trade agreement will likely lead to significant economic and trade benefits to both the EU and China, and will reassure consumers of goods

covered by the protected GIs that those goods are indeed authentic.

This landmark agreement presents an exciting opportunity for those in the agri-food industry wishing to expand into the European or Chinese markets respectively.

Laidian v. Ankerbox: Top China Court Adopts Narrow Interpretation of Claim Language in Utility Model Infringement Lawsuit Every year the general office of the Supreme Court of China announces their selection of the top 10 intellectual property (IP) cases as well as the top 50 “typical” IP cases.

According to the notice from the top court, these cases were chosen and “distributed for reference by people’s courts at all levels in their intellectual property trial work”.

These cases therefore provide great insight into the latest stance and litigation guidelines that are to be taken on by the Chinese courts.

By Kirwin Lee

One of the top 50 typical IP cases chosen for 2019 was the utility model infringement lawsuit Shenzhen Laidian Technology Co., Ltd. (“Laidian”) v.

Shenzhen Jiedian Co., Ltd. (better known as “Ankerbox”). Laidian and Ankerbox are both leading companies and direct competitors in the power bank rental industry in China, with Laidian having more than 180 million registered users and covering over 90% of Chinese cities.

The case was selected by the Supreme People’s Court primarily to demonstrate the possible significance of utility models in a company’s IP portfolio, even though traditionally they may be viewed by most foreign companies as being less valuable when compared to invention patents. This case also highlights potential pitfalls in claim drafting that can be applicable for both utility models and invention patents.

Ankerbox. It was previously ruled in the first and second instances that Ankerbox infringed the claims in this utility model, even though some of these claims were later found invalid during the second instance.

The main point of contention in the appeal to the Supreme Court concerns whether the alleged infringing products of Ankerbox reads onto the technical feature of a “transmission component”

The Supreme Court decision relates to whether lower courts erred in finding infringement of Laidian’s utility model patent ZL201520103318.2 (entitled “Absorption type charging device”) by 7

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in the claims of the utility model patent, as provided below: An absorption style charging device, characterized in that it includes an absorption roller mechanism, a charging mechanism, and a main control PCB; the absorption roller mechanism includes a first motor, a transmission component connected to the first motor, and a first-level roller component connected to the transmission component; the first-level roller component includes two opposite rollers; the first motor is electrically connected to the main control PCB; the charging mechanism includes a charging PCB connected to the main control PCB. The lower courts had concluded that the “transmission component” should be regarded as a functional feature, as the description of Laidian’s utility model refers to several different implementations of such “transmission component”. It had also been ruled that since the alleged infringing product includes a speed reduction motor which allows the transmission of power, Laidian’s utility model was infringed.

The Supreme Court subsequently overturned this decision, ruling that the “transmission component” of the patent in question is independent of the motor and is not part of the motor. It was also held that the function of the “transmission

component” is to transmit the power of the motor to the roller such that it can be incorporated with the motor in the same mechanical structure while achieving the effect of driving the roller. On this basis, the top court determined that the technical means, functions and effects of the speed reduction motor of Ankerbox’s products and the “transmission component” of Laidian’s patent are neither the same nor equivalent, and therefore Ankerbox’s products fall outside the scope of Laidian’s utility model patent.

Conclusion The Laidian v. Ankerbox infringement case demonstrates that Chinese utility models can be as equally effective as invention patents in deterring infringement particularly by direct competitors in the industry, provided that a comprehensive drafting approach is adopted. In fact, Laidian’s ultimate failure in recovering damages for Ankerbox’s alleged infringement provides a good lesson in diligent drafting practice, especially for utility model patents. Since there is no substantive examination for utility models prior to grant, it would be prudent to use broad and general claim language and to explore various permutations and implementations of the different components, so as to minimise the chances that the patent can be designed around.

This is for general information only and does not constitute legal advice. Should you require advice on this or any other topic then please contact the individuals below or your usual Haseltine Lake Kempner advisor.

Contact us Kirwin Lee Senior Associate klee@hlk-ip.com

Daniel Chew Partner dchew@hlk-ip.com 8

Li Min (Ellie) Chief Representative China Office lmin@hlk-ip.com

Haseltine Lake Kempner | China Newsletter March 2021