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18 October 2017
In 2016, China saw over 12,000 patent litigations filed, and 2017 is seemingly continuing that trend, says Elliot Papageorgiou, head of the intellectual property practice and partner at Clyde & Co in Shanghai. “The specialist IP courts in Beijing, Shanghai and Guangzhou (established from the end of 2014) have provided additional ‘arrows’ to the judicial patent protection framework. Judges presiding over these courts are well-trained and can focus exclusively on IP matters. As a result, the standard of judgment is consistently high.”
On the legislation side, there have been several major improvements in China. The promulgation of the New Interpretation (II) of the Supreme People's Court on Several Issues concerning the Application of Law in the Trial of Patent Infringement Dispute Cases (promulgated by the Supreme People’s Court in 2016) has been seen as a significant milestone. Based on Interpretation II, the Beijing High People’s Court has promulgated the new Guidelines for Patent Infringement Determination (2017), which aims to solve prominent problems encountered in patent infringement trials. The Guidelines has 153 articles, and is divided into six sections, including determination of the scope of protection for invention and utility model patents, establishment of infringement for invention and utility model patents, determination of the scope of protection for design patents, establishment of infringement for design patents, determination of acts of patent infringement and defenses in patent infringement. It offers a systematic prescription of topics including principles and methods for constructing claims, rules for establishments of infringement, determination of acts of patent infringement and the defenses that can be used. Especially, it offered for the first time prescriptions on hot topics including graphic user interfaces (GUI) and standard essential patents (SEP), says Hui Wang, a partner at Chofn in Beijing.
“Article 2 of the Interpretations provides that a people’s court may dismiss a lawsuit brought by a patentee based on an invalidated claim by the Patent Reexamination Board,” says Ethan Ma, a partner at Orrick, Herrington & Sutcliffe in Shanghai. “Several courts have dismissed lawsuits that involved invalidated claims according to Article 2 of the Interpretations II in 2017.”
Another example that reflects the influence of courts in the enforcement and development of patents relates to the provisions on functional features. “Article 8 of the Interpretations II sets forth that, if the technical feature of an accused infringing technical solution can perform the same function as the functional feature of a claim in substantially the same way and achieve the same effect that is obvious to an ordinary technician without creative efforts at the filing date of the patent asserted in the case, the people’s court should hold that the accused technical feature is identical to or is equivalent to the claimed functional feature,” Ma says. “On the contrary, Article 4 of the Interpretations requires the people’s court to determine the contents of functional technical features in light of the specific method for implementing such functions or effects described in the descriptions and attached drawings.”
Based on Interpretations II, the Jinhua Intermediate People’s Court of Zhejiang decided that the defendant infringed the invention patent involving functional features in a patent infringement case between Jingjing Gao and Jialing Wu in 2017.
The issue of functional features was also involved in the patent administrative dispute of Apple Inc. v. Beijing IP Office. In this case, the Beijing IP Court determined that five features of the design patent at issue were not functional features, and that differences between the design patent and the accused design were obvious. Hence, the court decided that Apple had not infringed the design patent (No. ZL 201430009113.9) and revoked the decision made by Beijing IP Office. “The court’s decision made it difficult for the patentee to enforce the asserted patent,” says Ma.
As for the court practice, the biggest litigation problems are the difficulty in collecting evidence – there is no discovery procedure in China – and unpredictable court decisions, the result of poorlytrained judges and potential local protectionary measures. There are signs that the evidence problem is easing, as courts have now shifted the burden of proof for the calculation of damages under certain circumstances, in accordance with the prescriptions of the Interpretation II, which are reflected in many cases, including Watchdata v. Hengbao in the Beijing IP Court. As for the second problem, many of the articles in the Interpretation II and the Guideline aim to address this problem (e.g., the introduction of the concept of “the room for designer”), Wang says. “The specialized IP court system is also expanding to combat local protection, and the Beijing IP court is now designated by the Supreme People’s court to study the establishment of a case law system.”
The Supreme People’s Court issue guiding cases every year, and local courts issue annual typical or innovative IP cases, Ma says. “All decisions have subsequently affected similar cases.”
The 16th batch of guiding cases, issued by the Supreme People’s Court on March 6, 2017, included three patent infringement cases, including Eli Lilly and Company v. WATSON Pharmaceuticals (Changzhou) Co. The No. 84 Guiding Case points out that the technical source, production procedures, batch production records, filed documents and other evidence of the alleged infringing drug should be fully-investigated in order to determine the actual production process of the alleged infringing drug when any evidence proved that the filed process of the alleged infringing drug was unauthentic. The case also provides approaches such as consulting with a technical investigation officer, expert assessor, judicial authentication as well as consulting with scientific and technological expert might be comprehensively applied for the investigation in such patent cases, says Ma.
In a case named by the Beijing High People’s Court in April 2017 as one of the Top 10 Typical IP cases of 2016, involving the invalidation of a patent titled “methods for improving the switch in cellular mobile radio systems,” the court made a judgment based on the legislative goal of the patent law and decided that no matter whether a revision expanded or limited the protection scope, if the revision substantially changed the technical solution, such revision should not be accepted during the reexamination procedure, Ma says. “Such a decision improves and crystallizes the patent law and controls the issuance of patents.”
Other important judgments on patent infringement and invalidation cases in 2017 also have affected the enforcement and development of patents. For example, in Iwncomm v. Sony regarding a standard essential patent for WLAN Authentication and Privacy Infrastructure (WAPI), the Beijing IP Court found that Sony had infringed Iwncomm’s SEP and ordered a permanent injunction along with damages of around Rmb9 million (US$1.35 million) on March 22, 2017. The Beijing IP Court determined that Sony committed both direct and contributory infringement. “This case shows that a permanent injunction is available in a SEP case and the damages for such case may be large,” Ma adds. “In August 2017, Apple filed a petition with the Patent Reexamination Board to invalidate the same patent involved in Iwncomm v. Sony, and this Apple invalidation case regarding WAPI is still pending.”
As for the general environment and future outlook, it is important to note that in China, the policies (or even the words) of the government would carry significant weight in any field, including IP. During the 16th meeting of the Leading Group for Financial and Economic Affairs on July 17, 2017, President Jingping Xi gave a keynote speech on the protection of IP in China. Xi emphasized that rights protection, especially IP, was the cornerstone in building a favourable business environment, and that laws and regulations related to IP should be further revised, and examination quality and efficiency should be improved, the cracking down on infringers should be more intensive and, especially, infringers should be made to pay a heavy price, Wang says. “In line with his policy speech, all the relevant governmental departments are rushing to come up with new implementation laws and regulations. Particularly in 2017, it is obvious that the Chinese courts are awarding higher damages. This phenomenon is due in no small part to the aforementioned encouragement from the Chinese government for innovation and creation.”
“Many of our clients are now also aware of the importance of IP and are allocating more budget for it,” Wang says. “In-house IP departments are more involved in the major decision-making process of the companies. They are also more inclined to use the courts to settle disputes. As a result, both the concerned parties and the courts are gaining more experience, which paves the way for further improvement.”
Elsewhere in Asia
In Indonesia, Nidya Kalangie, a partner at SKC Law in Jakarta, says that litigation there remains challenging because:
• principles for calculating damages are not clearly established, and damages awards can vary dramatically from case-to-case;
• there is no discovery procedure, so a plaintiff must establish its case with its own evidence (while still complying with onerous rules of evidence);
• there is no costs rule, meaning that a successful litigant cannot recover costs from an opposing party;
• there is no doctrine of precedent, so courts are free to exercise a wide subjective discretion; and
• corruption remains a significant issue.
When enforcing patents, criminal proceedings are generally preferred, Kalangie says. “Patent owners may negotiate settlements with targets in criminal cases because these are complaint-based crimes, and the complainant has the right to withdraw its complaint within three months. Settlement terms typically comprise undertakings, consent to destruction of seized goods, and a public apology.”
In South Korea, the Patent Court plays a key role when discussing courts and IP cases. The Patent Court was established on March 1, 1988, as an appellate court to handle IP invalidation cases such as patents, designs, and trademarks. However, the bifurcated system at the time – where invalidation trials at the Intellectual Property Trial and Appeal Board (IPTAB) were appealed to the Patent Court and then to the Supreme Court, and infringement trials at the district court were appealed to the High Court and then to the Supreme Court – called for a unified and consistent decision making process for both invalidity and infringement trials. Thus, since 2016, the Patent Court has been the sole appellate court for IP cases, handling both invalidity and infringement trials, says Un Ho Kim, a partner at Lee & Ko in Seoul.
The court has taken many steps to consistently improve its central role as an IP decision maker. It did not only receive talented technical experts from the IPTAB, but also recruited technical clerks with doctoral degrees to analyze complex technologies. Further, it nominated judges with technical backgrounds.
In addition, the court published its trial procedures for efficiency and predictability, which was translated into English and Japanese to assist foreign parties. The court is also considering the establishment of an international chamber where trials are conducted in English so that foreign clients are more comfortable as a party to a case. In furtherance of this effort, on June 28, 2017, a mock hearing for the international chamber took place at the Patent Court. The hearing was notable as it was the first proceeding in South Korean courts that was conducted in English. It is based on a pending amendment to the Court Organization Act and other legislation that would allow court proceedings to take place in a language other than Korean, Kim says. “Although it remains to be seen when such hearings will become commonplace and when decisions of these hearings become official record, it is noteworthy to see those developments in our court system.”
In 2017, the Patent Court handed down a seminal decision that strengthened a pharmaceutical patentee’s rights. On March 16, 2017, the Patent Court issued rulings in favour of patentees (i.e., original drug manufacturers) in patent term extension (PTE) challenges brought by generic drug manufacturers. In these challenges, which were brought under the patent-approval linkage system implemented in March 2015, the generics argued that the PTEs granted on the original drug manufacturers’ patents improperly exceeded the extension term allowed under the patent statute. These cases were assigned to the Special Division of the Patent Court, where the chief judge presided over the review. The Special Division made a decision that the Patent Act allows PTE for a time period during which the patented invention could not be practiced due to regulatory review, such as review under the Pharmaceutical Affairs Act.
For regulatory review under the Pharmaceutical Affairs Act, the eligible term begins with safety and efficacy testing or the patent registration date, whichever is later; it ends upon the delivery of the regulatory approval to the patentee. Under Article 89(2) of the Patent Act, “delays attributed to the patentee” are excluded from PTE. “Delays attributed to the patentee” mean actual delays in regulatory approval that are caused by reasons attributable to the patentee. In other words, there must be a causal relationship between the delay and the reason attributable to the patentee. A pharmaceutical product is approved only after (1) clinical trials, (2) the Ministry of Food and Drug Safety’s review of safety and efficacy, (3) review of specifications, test procedures and acceptance criteria, (4) good manufacturing practice(GMP) review, and (5) drug master file (DMF) review.
The generics makers argued that only the time spent in clinical trials and review of safety and efficacy is eligible for PTE, but PTE is not limited to these periods. The generics makers also argued that all time periods relating to document supplementation, even if review was undergoing in some regulatory divisions during the supplementation, should be considered as “delays attributed to the patentee,” Kim says. “However, delays due to document supplementation cannot be deemed ‘delays attributed to the patentee’ if review was undergoing in some regulatory division during this time. There are about 120 PTE cases pending at the Patent Court, and the Patent Court will likely render similar decisions in these cases. The Patent Court decisions, if appealed, are unlikely to be reversed by the Supreme Court, especially considering that these cases are first decisions by the Special Division of the Patent Court.”
The Supreme Court’s role in protecting IP must also be mentioned. In 2017, the Supreme Court shifted the burden of proof regarding claim construction to the petitioner, seen as a strong indication further solidifying IPRs. Under South Korean patent practice, the elements recited in a preamble of a patent claim or description of related art of the patent specification was often considered as prior art. Specifically, in the past, the Supreme Court held that the description of related art is presumed to be prior art. However, on January 19, 2017, an en banc Supreme Court decision overruled this practice by ruling that the preamble in the claim and description of related art of the patent is presumed to be prior art only when supported by the specification and the prosecution history, while allowing for the presumption to be overcome under certain circumstances.
The Supreme Court allowed the prior art presumption of the preamble and description of related art only when the entire content of the specification and the prosecution history shows that the applicant admitted to and included the element in the preamble or description of related art to be prior art. “However, according to the decision, this presumption is not conclusive, and may be overturned under certain circumstances. In the case at issue, the presumption was overcome when the patentee showed evidence that the technology disclosed in the preamble was proprietary technology that was yet to be disclosed at the time of application but disclosed at the time of filing a response to the examiner’s rejection, and that the inadvertent disclosure occurred due to the patent drafter’s mistake,” Kim says. “From a practical standpoint, this decision provides the patentee an opportunity to rebut the presumption during a patent invalidity action even if the patentee mistakenly admitted or indicated certain element as prior art.”
The United Arab Emirates is a federation of seven Emirates – Abu Dhabi, Dubai, Sharjah, Ajman, Ras Al Khaimah, Umm Al Qwain and Fujairah – which per se has no administrative authority to enforce patents. Abu Dhabi, Dubai and Ras Al Khaimah each have their own court systems, and enforcement matters fall under the individual courts of these emirates. An infringement or enforcement action occurring in one of the other four emirates should be brought before the federal courts of the UAE.
There are no pre-trial procedures. The court will assign the first hearing date and summon the parties once the case is filed and fees are paid. Civil trials are conducted on the basis of exchange of written memoranda and documentary evidence. “As the courts in this jurisdiction rarely handle patent cases, the usual practice is to appoint an expert, who will consider the arguments and evidence presented and meet with the parties and provides the court with a report. However, courts are not bound by the expert’s findings,” says Ashin Chungath, an IP consultant at JAH & Co IP in Doha. “The Federal Court has recently established an IP division to hear relevant cases. The judges sitting in this division do not have a technical background, but have had additional training in IP law, including patents. The court appoints experts in almost every case, who may be technical experts.”
In the United States, trial courts have continued to view certain patents, especially software-related patents, with a skeptical eye. “This has forced companies to be more strategic in their patent filings and strategies to protect their economic investments in innovations in the software and computer industries,” says Antony Pfeffer, a partner at Orrick, Herrington & Sutcliffe in New York. “Recently, there have been a few cases of district court findings of unpatentability being reversed by the US Court of Appeals for the Federal Circuit, including Visual Memory v. NVIDIA, which was decided on August 15, 2017.”
Additionally, the continued propensity of the US Patent and Trademark Office’s Patent Trial and Appeal Board to invalidate issued patents has made it more difficult for companies to enforce their patents, Pfeffer says. “However, these proceedings are under attack as violating the Constitution by allowing an administrative agency to remove a private property right, and the Supreme Court has agreed to hear a case, Oil States Energy Services v. Greene’s Energy Group, to resolve this issue.”
On May 22, 2017, the US Supreme Court handed down its highly-anticipated opinion in TC Heartland v. Kraft Foods Group Brands. The decision is a dramatic departure from how courts had been approaching the patent venue for more than 20 years. The Supreme Court clarified that venue in patent infringement proceedings is exclusively controlled by 28 U.S.C.§1400, which provides that “[a]ny civil action for patent infringement may be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business.” The court held that this patent venue statue is exclusive of the general venue statute of 28 U.S.C.§1391. Accordingly – consistent with a prior Supreme Court decision on the meaning of §1400(b) – a domestic corporate defendant “resides” only in that state where that corporation is incorporated. In the three months since the decision issued, federal courts and litigants are already seeing an impact, says Shaobin Zhu, a partner at Morgan, Lewis & Bockius in Beijing.
“TC Heartland will fundamentally impact where patent cases are filed. Districts in east and west coast states such as Delaware, California, New York, New Jersey and Florida, where large numbers of companies are headquartered or located, will likely see an increase in patent litigation filings, whereas Texas may experience a decrease (but not total depletion) of filings and a likely uptick in venue challenges,” Zhu says. “Even foreign corporations – who were technically left untouched by the TC Heartland decision – may now seek transfer at higher rates.”
Should Invention Categories Be Broadened?
The primary rationale behind patent law is to provide an incentive to inventors to disclose details regarding how to make and use their inventions to others, in exchange for a limited monopoly to prevent others from making or using those inventions. This rationale is based in part on the observation that such incentives promote the progress of science and the useful arts, by improving the public exchange of information that would otherwise be maintained in secret for a competitive advantage, which allows others to learn from those ideas and to further improve them, says Christopher Rourk, a partner at Jackson Walker in Dallas. “Ideally, this incentive should be directed to statutory categories of inventions that have commercial and practical applications that are harmonized with specific societal objectives, as opposed to fundamental ideas that are useful for a wide variety of such applications, or theoretical and analytical work.”
The identification of what constitutes patentable subject matter has changed over time since the earliest instance of patents, with some modern states only providing an identification of subject matter that is not patent-eligible. “In that regard, a threshold question might be whether it would be a good idea for the patent laws of a country to include both positive recitations (i.e. things that are patentable) as well as negative recitations (i.e. things that are not patentable). Regardless of whether amendments are in positive or negative form, though, it would seem to be a good idea to at least consider or publicly debate whether amendments are needed to help direct innovations in areas where (1) innovation is deemed valuable, and (2) innovations would otherwise be maintained in secret and not publicly disclosed,” Rourk adds.
There is often a difference of opinion as to whether patents should be allowed in certain areas, such as medicine and software, Rourk says. In that regard, it might be useful to consider an identification of patentable subject matter that is more narrowly tailored, such as for medical treatments related to curing specific diseases, such as cancer or Alzheimer’s disease, or software for specific applications, such as artificial intelligence or encryption.”
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