IP system and latest developments in China. Beijing Sanyou Intellectual Property Agency Ltd. June, PDF Free Download

IP system and latest developments in China Beijing Sanyou Intellectual Property Agency Ltd. June, 205

Main Content. Brief introduction of China's legal IP framework 2. Patent System in China: bifurcated system, infringement and invalidation 3. Special point: Utility model patents in China 4. Trademark: how to deal with trademark infringement activity in China

Brief introduction of China's legal IP framework. Court structure 2. Actions available for patent & trademark disputes 3. Overview of litigation cases in China 4. Jurisdiction issue 5. Evidentiary issue (how to prove)

The Chinese Court System Court court system Supreme Court Special courts including military courts, maritime courts and railway courts 3 High Courts Over 350 Intermediate Courts Over 3000 Basic Courts 205/6/7 *more courts with jurisdiction over TM infringement litigation cases than patent infringement litigation cases

Layout of the courts with jurisdiction of the patent infringement cases 8 3 2 2 2 2 2 2 3 3 3 3 6 2 0 2 2

possible. The Chinese Litigation System Courts Bifurcated system; Two-instance trial system; No jury; panel of 3 or 5 judges (in first instance, may include one(or two) lay persons named as people s juror); Technical expert likely to get involved; in IP courts, Technical Researcher system (Technical Investigation Officer) is introduced; three specialized IP courts newly established in Beijing, Shanghai and Guangzhou; additionally over 0 courts with jurisdiction over patent infringement cases, which have special IP tribunals; Forum Shopping

AIC action for TM Actions other than court proceeding Local IP Office action for patent. Applicable for patent (invention, utility model and design) 2. Prima facie infringement evidence is sufficient to start the action 3. No damage. Applicable for TM infringement 2. Quick 3. Prima facie infringement evidence is sufficient to start the action 4. Powerful investigation 5. No damage border measures- Customs Action for both patent and TM. Applicable for import/export of infringing products 2. benecial to record IPR at customs 3. seizure of goods (ex-officio or upon requested)

Overview

Why so many litigation in China? Large Market (.4 billion people) Huge number of valid patent (over 3.8 million patents including over.8 million invention patents by Nov 204) Quick: st instance, normally within one year; 2nd instance, even quicker stronger weight in negotiation inexpensive: first instance, attorney fee normally US$ 30,000-300,000

Any disavantages to litigate in China? difficult to collect evidence-no Discovery the formality requirement of evidence is very high and strict low damage difficult to enforce the decision sometimes

The amount of patent infringement litigation first instance decisions Sanyou collected in 200 and 20 400 200 209 25 all foreign plaintiff 000 800 600 400 200 0 60 7

Development of Beijing IP Court Nov. 6, 204 Mar. 20, 205 Docketed cases: 2400 First Instance: Copyright: 55; TM:463, Patent: 505, Others: 35; Second Instance: Copyright 259, TM: 3, Patent: 3, Others: 49.

Development of Beijing IP Court Nov. 6, 204 Mar. 20, 205 Finished cases: 587 First Instance: 346; Second Instance: 24 Estimated numbers of cases: 0,000 /year Estimated average workload: 220 cases / judge / year

Jurisdiction Jurisdiction by court Level Venue jurisdiction Designation jurisdiction

Patent Infringement Litigation Where to sue (place and court) Level of court General Rule: a patent infringement litigation shall start from an intermediate-level court or a higher level court Example : Oerlikon v. Savior, Starting from Beijing 2 nd intermediate-level court Example 2: Eli Lilly v. Jiangsu Haosen (2009) Civil third final No. 6 First instance: Jiangsu high-level court Second instance: the Supreme court

Where to sue (place and court) Exceptions Basic courts: Such as Haidian basic court has the power to hear partial cases relating to patent disputes (including patent infringement) The case shall relate to utility model or design patent; and Damage as claimed shall be less than 5 million, or Damage as claimed shall be less than 0 million and both parties are located in Beijing.

Where to sue (place and court) Venue Basic rules: the defendant place or infringing place. Infringing place covers: the places of making, using, offering for sale, selling, importing the accused infringing products, the places of using the patented process, the places of using, offering for sale, selling or importing the products directly obtained from the patented method. If only sue against the manufacturer, without the seller, and the manufacturer is located different from the seller, the court at the manufacturer s place has the jurisdiction. To sue both (the manufacturer + the seller), the court at the place where the accused products are sold has the jurisdiction.

Remarks Whether the court will consider substantial matter in determining the procedural matter of jurisdiction issue? Case study: First defendant: offer for sale online and by brochure; Second defendant: manufactured for the first defendant; Third defendant: mentioned in the brochure of the first defendant as customer. Plaintiff sued in the place of the first defendant. Third defendant challenged the jurisdiction of the court and argued: Not a customer of the first defendant; No jurisdiction by this court on third defendant Court: whether a customer is a substantial matter to be examined during litigation, not considered in this procedural matter of jurisdiction issue.

Jurisdiction issue relating to sales online Case study: Remarks. Server of the website is located in Beijing; 2. Place of manufacture: Zhejiang; 3. Lawyer of plaintiff ordered online and received the product in Suzhou. 4. Where could the plaintiff sue? Beijing? Zhejiang? Or Suzhou? 5. Court: the place of receiving accused products is considered as infringing place.

Proving your case basic rule: who claims, who proves! --formality requirement strict: evidence formed out of China required notarization and legalization; foreign language required to be translated into Chinese --documentary evidence and physical objects weigh more than witness statement; however, experts' opinions invited by the court are normally well respected Evidence Preservation Procedure available evidence preservation request may be submitted with the court with the conditions that:. the evidence may possibly disappear; or 2. it may be difficult to collect the evidence later on

Legal Basis Article 8 of Civil Procedural law During litigation, if there is a likelihood that the evidence may be destroyed, lost or difficult to be obtained later, the party may apply for evidence preservation; Before lawsuit, in case of emergencies in which the evidence may be lost or difficult to be obtained afterwards, the interested party may apply before the court in the place where the evidence is located or the person applied has his domicile or the court has the jurisdiction over the case.

Legal Basis Rules for evidence preservation for IP lawsuits by local courts Shanghai High Court: Rules for evidence preservation for IP lawsuits Beijing High Court: Rules for evidence preservation for IP lawsuits Zhejiang High Court: Rules for evidence preservation for IP lawsuits Shenzhen Intermediate Court: Rules for evidence preservation for IP lawsuits

Application of evidence preservation In 203, 73 applications for pre-trial preservation of evidence were received, and 97.63% were granted approval, which have reduced the burden of proof on the parties concerned. Intellectual Property Protection by Chinese Courts in 203 Example case: Microsoft vs. e-future Information Technology Inc., before Wuhan Intermediate People s Court e-future was alleged to have infringed upon Microsoft s Microsoft Office series of software, Microsoft had applied for pre-trial preservation of evidence and its application approved.

Patent System in China: bifurcated system, infringement and invalidation. bifurcated system, infringement and invalidation 2. Stay issue 3. Invalidation of the patent vs. Enforcement of court decision finding infringement

Invalidation and litigation. Bifurcated procedures infringement before court; invalidation before Patent Reexamination Board 2. Invalidation procedure: any individual or entity (including the patentee) could raise invalidation request against a granted (even terminated) patent all invalidation cases are inter-parties no US-style estoppel

Number of invalidation cases from 20 to 204 3500 3000 2500 2000 500 000 Design UM Invention Total 500 0 20 202 203 204 205.-2

Invalidation and litigation 3. Comprehensive consideration on stay issue based on following factors: the type of the patent; the stay petition filed within the answer period (5/30 days)? the search report for Utility Model or Design patent? grounds and evidences for the invalidation, likely? 4. Effect of invalidation of the patent in question whether an effective decision finding infringement had been enforced? if not, then no infringement; if enforced, then as is, no return of damage

Special point: Utility model patents in China. Introduction on and current situation of China Utility Model (UM) Patents 2. Issues related to China Utility Model Patents 3. Suggestions

Introduction Definition Utility model means a new technical solutions proposed for the shape and structure of a product, or the combination thereof, which are fit for practical use. Patentable subject matter ) product with shape and structure product without shape and structure is non-patentable under UM patent, such as a compound. 2) no method Prosecution procedure preliminary examination only; Patent term 0 years from filing date

Utility Model

Patentable subject matter Examinatio n procedures Prosecution period Invention Utility Model Design Product & method Product (shape + structure) Preliminary examination & Substantive examination Preliminary examination only (substantial requirements + possible novelty examination) 3-5 years Within year (about 6-0 months) Product (Design) Preliminary examination Within year (about 3-6 months) Cost Expensive Inexpensive Inexpensive Patent Term 20 years 0 years 0 years

Factors to be considered for UM patent If the object could be protected by UM? Is it a product? Does the improvement relate to its structure or construction? Life time of the product If the life time of the products in the marketplace is less than 0 years, UM may be considered. How easy/quick could it be copied once it is launched in the market? If it could be copied easily/quickly, the applicant may consider filing a UM to get granted a patent right quickly. The inventiveness of the improvement In case the inventiveness is not high, UM can be considered.

Disadvantages of a UM No substantive examination, no procedure for amending claims against the prior arts; --Once granted, for invention and UM patents, it is not allowed to amend the claims according to the specification or drawings. Instead, the patentee may only delete claims/solutions or combine claims. * Suggestions:before filing, in-depth search on prior arts should be conducted. Proper claims shall be drafted based on the prior arts. A patentability evaluation report will be required if patent infringement litigation is lodged based on the UM. * It may take 2-3 months to obtain the patentability evaluation report. When requesting for stay the infringement case to wait for the invalidation result, UM patent is in a weak position compared to invention patent.

Advantages of a UM The examination criteria for UM is kind of lower than that for invention No significant difference between damage awarded in patent infringement litigation regarding invention patent and regarding UM patent; Four methods to determine damage as stipulated by Art.65 of patent law: According to the actual loss of the patentee;; According to the profit gained by the infringer; According to the times of reasonable royalties; Statutory: varying from0,000 to one million (CNY). There is only slight difference on statutory compensation for UM and Invention.

Issues related to China Utility Model Patents Huge amount of UM A significant amount of UM are owned by NPE or individuals Less effective for corporates to fight against individual or NPE patentees with patent pool Threats cannot be ignored, though the quality of UM patents varies dramatically

Issues related to China Utility Model Patents Huge amount of UM UM applications received by SIPO April 985-December 200 source UM Filed UM cases percentage Subtotal 2,44,324 00.0% Total Service 969048 40.% Nonservice 445276 59.9%

Issues related to China Utility Model Patents Huge amount of UM Utility Model applications received by SIPO 20-203 source UM Filed percentage Subtotal 2,28,9 00% Total Service,549,60 69.8% Nonservice 668,959 30.2%

Issues related to China Utility Model Patents Huge amount of UM Source UM applications granted by SIPO April 985-December 200 UM Granted Percentage Sub-total,73,06 00.0% Total Service 739494 43.2% Nonservice 97362 56.8%

Issues related to China Utility Model Patents Huge amount of UM Source Utility Model patents granted by SIPO 20-203 UM Granted Percentage Sub-total,672,8 00% Total Service,207,29 72.2% Nonservice 464,839 27.8%

Issues related to China Utility Model Patents A significant amount of UM are owned by individuals April 985-December 200 source UM Classification Filed Percentage Sub-total 244324 00.0% Total Service 969048 40.% Non-service 445276 59.9% Sub-total 2397523 00/99.3 Domestic Service 955832 39.9% Non-service 4469 60.% Sub-total 680 00/0.7 Foreign Service 326 78.7% Non-service 3585 2.3%

Issues related to China Utility Model Patents A significant amount of UM are owned by individuals April 985-December 200 Source UM Classification Granted Percentage Sub-total 7306 00.0% Total Service 739494 43.2% Non-service 97362 56.8% Sub-total 699467 00/99.2 Domestic Service 728660 42.9% Non-service 970807 57.% Sub-total 3639 00/0.8 Foreign Service 0834 79.4% Non-service 2805 20.6%

Issues related to China Utility Model Patents Threats cannot be ignored, though the quality of UM patents varies dramatically Statistics on invalidation cases (invalidation rate) Statistics on litigation cases (win rate) Example cases (Chint v. Schneider) damage

Issues related to China Utility Model Patents Invalidation Rate Comparison of three types of patents 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 0.00% 0.00% 200 2002 2003 2004 2005 2006 2007 2008 2009 200 20 invention UM Design

Issues related to China Utility Model Patents Validity challenge cases of utility model patents 60.00% 50.00% 40.00% 30.00% 20.00% 0.00% 0.00% 200 2002 2003 2004 2005 2006 2007 2008 2009 200 20 invalidated maintained partially invalidated withdrawn

Patentee Win Rates by Patent Type for cases concluded in 2007 202 (win/win+lose) (note: the above data comes from the sample cases we collected for 2007-202) 5

Patentee Win Rates by Patent Type and Domestic/Foreign Plaintiff, 2007 202 (win/win+lose) (note: the above data comes from the sample cases we collected 52 for 2007-202)

Issues related to China Utility Model Patents Example case(chint v. Schneider)-Damage Patent concerned:um patent: ZL97248479.5 Damage decided by first instance:cny334,869,872

Issues related to China Utility Model Patents Following difficulties faced by corporates using technologies:. High cost to invalidate; 2. Higher possibility to be sued; 3. Hard to invalidate. Suggestion:establish defensive measures and system early.

Suggestions File applications proactively to build a patent pool Defensive publication in way of patent application, online disclosure, etc. Evidence collection for defense (prior use defense) Watch patent filing situation of your main competitors Freedom-to-operate search Patent invalidation preparation and invalidation request

A typical case Company A: invented and patented a new product The Patent: the main inventive point is feature a which lies in the panel portion of the product. The Product: structures of the product includes feature a and all other structure not mentioned in the patent Company B: found the product in the market and filed a UM application The UM application: a structure b of the product but not mentioned in the patent of Company A Company B warned A with the UM patent and Company A feels frustrated Earlier patent A did not disclose the structure b; It is difficult to collect evidence to prove the date and the structures of the earlier sold product with concrete evidence.

Trademark: how to deal with trademark infringement activity in China. Overview 2. Actions available against trademark infringement Procedure of AIC action Procedure of court action 3. Infringement issue and Defense 4. Damage issue

Overview 2000000 800000 600000 400000 200000 000000 800000 Trademark Registration Applications before CTO 830477 76639 707948 6989 66407 07287 46785 64836 88546 600000 400000 200000 0 2005 2006 2007 2008 2009 200 20 202 203 Note: OHIM received 08000 TM applications in 202.

Overview Chinese TM Registration Applications filed in 202

Overview Top 0 Foreign countries for TM filing in China in 202 USA Japan 2572 2475 Korea UK Germany France Virgin Islands Italy Australia Singapore 64 5680 4395 3599 2758 2609 230 836 0 5000 0000 5000 20000 25000 30000

Overview

Overview Overview of AIC Actions against Trademark Infringement Cases Year Number of cases in total Number of cases with complaints Number of foreign related cases Number of foreign related cases with complaints 200 48548 524 20 56095 2695 620 3764 202 50289 905 085 3722

Actions against TM infringement Judicial Procedure: Court Action Administrative Procedure: AIC Action

Court Action Where to sue? (Level) General Rule: a trademark infringement litigation starts from an intermediate-level court or a higher level court; With the approval of the Supreme Court, a basic court in larger cities could have jurisdiction for TM infringement lawsuits. Such as: Haidian district court in Beijing, Huangpu district court in Shanghai.

Court Action Where to sue? (Venue) Limited forum shopping Forum shopping (courts having jurisdiction) at the infringing place where the infringement occurs, at the storage/seize place where infringing products are stored or seized, and at the defendant's place where the defendant domiciles. Limitation if the action is taken against multiple defendants with different infringing behaviors, the plaintiff could select the court of infringing place of any defendant (not the defendant place); if the action is taken against only one of the defendants, only the court at the infringing place of that defendant or the court of the defendant's place has jurisdiction.

Stay issue: Court Action General rule: The stay will not be granted even if the defendant requests to stay the TM infringement litigation based on the ground that the Application of Invalidation against the cited TM has been filed before TRAB. However, if the evidences and grounds for the invalidation are sufficient, the court could support the request and stay the litigation. Midnight TM infringement case, Beijing st Intermediate Court (2003) Civil Ruling No.348 Jingda TM infringement case, Beijing 2 nd Intermediate court (2003) Civil Ruling No.22

Court Action What could get for plaintiff? (Remedies available in court decision) Injunction Damage claim Fine Confiscate infringing products, marks and materials; tools and devices for manufacturing infringing products.

AIC Action Jurisdiction Procedure Remedy

AIC Action Jurisdiction Administration of Industry and Commerce of district level or higher level At the infringer s place or infringing place

AIC Action Procedure Step : Filing the complaint before AIC; Step 2: AIC conducts investigation or even a raid action; Step 3: Response/hearing stage, usually there is no hearing unless the party investigated requests a hearing; Step 4: A written decision is issued by AIC.

AIC Action Power of AIC Inquiry Review and copy related documents On-site inspection / raid action Seal up or detain

AIC Action Remedy Injunction (Cease and Desist order); Fine; Confiscate infringing products and related materials, tools and equipments; Damage claim (mediation only).

Infringement issue and Defense Elements of Infringement Without authorization Infringing behavior Likelihood of confusion Similarity of marks Similarity of goods/services

Infringement issue and Defense Defense Fair use If a registered trademark contains the generic name, shape or model of the goods in respect of which it is used, or directly indicates the quality, main raw material, function, use, weight, quantity and other features of the goods, or contains a place name, the trademark owner has no right to prohibit others from duly using it. Factor in considering fair use issue Whether it is used as a trademark; The distinctiveness and level of recognition of the trademark; Bad faith of the user; The likelihood of confusing and misleading the related public.

Infringement issue and Defense Defense The defendant uses his own registered trademark If the defendant also registered the accused mark as used, based on the judicial interpretation of the supreme court, the plaintiff has no right to sue before removing the registered mark of the defendant. Later registered TM could be used against TM infringement charge with earlier registered TM. It is very very important to oppose other s later filed conflicting TM application before its registration.

Damage Issue Method for calculating damages:. Loss of the trademark owner owing to the infringement; 2. Profit of the infringer from the infringing activities; 3. Multiple times of reasonable royalty; 4. Statutory damages within 3 million RMB (around half million USD). The above methods should be applied in order.

IP system and latest developments in China. Beijing Sanyou Intellectual Property Agency Ltd. June, 2015