Chinese Patent Enforcement&

Trade Secret Protection

April 16, 2013International Patent Forum

China IP’s Challenge

• Since joining the World Trade Organization (2001), China has strengthened its legal framework and amended its IPR laws and regulations to comply with the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)

Prevention — Best Protection

• Registerable/Non-registerable IPs– Patent: the State Intellectual Property Office (SIPO, the Patent

Office)– Trademark: the Trademark Office of the State Administration for

Industry and Commerce – Copyright: China’s National Copyright Administration (NCA) – Unfair Competition: the Fair Trade Bureau under the State

Administration for Industry and Commerce (SAIC) – Trade Secret (know-how): protected under Anti-unfair

Competition Law

Legal Authorities

• Relevant Law—by the National People’s Congress– The Patent Law (effective October 1, 2009)

• Relevant Regulation—by the State Council– Implementing Regulations (effective February 1, 2010)

• Relevant Rule—by the State Intellectual Property Office– Examination Guidelines (effective February 1, 2010)

• Judicial Interpretation—by the Supreme Court– Provisions on Issues Relating to Applicable Laws to Trials of

Patent Infringement Controversies (effective January 1, 2010)

IP enforcement

• Administrative Proceedings– Quicker and cheaper than using the courts – Administrative authorities also accept a lower level of evidence. – Fast results.

• 2012– SAIC local offices: 120.4k cases against counterfeits and

infringement of trademarks– SIPO local offices: 2510 cases of patent disputes, 6512 cases of

patent passing off acts– NCA local offices: 282 internet copyright infringement and closed

183 websites

IP enforcement

• Civil Court Proceedings– Dominant method for intellectual property rights protection– Relative low damages awards– Also supervise and review IP-related administrative decisions– Growing amount of cases brought to Chinese courts, an

encouraging factor that shows growing enforcement of IP rights

• 2012– First instance people’s courts: 87,419 accepted cases

IP enforcement

• Criminal Prosecution– Individual is subject to prosecution where the number of

counterfeit items exceed 20,000, or where the brand more than one brand, 10,000 items. Criminal prosecution is appropriate where the illegal revenues exceed RMB 50,000. If more than one brand is involved the threshold is 30,000 RMB

• 2012– People’s procuratorates: accepted 17244 cases transferred from

law enforcement authority

The trial courts carry out “4 levels 2 instances system”

The Supreme People’s Court of PRC (1)

High People’s Court of provinces, autonomous regions, municipalities

(32)People’s Army Court

Martial

Court Martial in Regional Military District, Various Types of Army

Local based Court Martial

Intermediate People’s Court of

railway transportation

Base People’s Court of railway

transportation

Admiralty CourtIntermediate People’s Court of local

regions, cities, league, autonomous state ( 369)

Basic People’s Court of local counties, cities, townships, district and autonomous counties (10,392)

Hierarchy of the Judiciary

Year Accepted Cases % Increase Concluded Cases % Increase

2006 14219 5.92 14056 4.95

2007 17877 25.73 17395 23.75

2008 24406 36.52 23518 35.2

2009 30626 25.49 30509 29.73

2010 42931 40.18 41718 36.74

2011 59882 39.48 58201 39.51

2012 87419 45.99 83850 44.07

First Instance Civil Proceedings(2006~2012)

First Instance Civil Proceedings(2006~2012)

2011 Civil Proceedings

Court Dispute Type Accepted Cases

Increased (vs. 2010)

Concluded Case

Increased (vs. 2010)

1st Instance Court*

Patent 7819 35.16%

Trademark 12991 53.56%

Copyright 35185 42.34%

Technology Contracts

557 -16.87%

Unfair Competition

1137 0.53%

Others 2193 11.55%

total 59882 40.14% 58201 39.51%

2nd Instance Court

total 7642 17.17% 7659 18.18%

Rehearing total 294 164.86% 224 105.50%

Supreme Court 305 311

*Foreign-related cases: 1321 (-3.51%)

2011 Administrative Proceedings

Court Dispute Type Case Newly Filed

Increased (vs. 2010)

Case Closed Increased (vs. 2010)

1st Instance Court

Patent 654 18.69%

Trademark 1767 -12.78%

Copyright 2 0.00%

Others 10

total 2433 -6.06% 2470 3.30%

2nd Instance Court

total 1333 1266

Supreme Court (by applicant) 102 101

Supreme Court (by court) 13 11

The Flow Chart of Civil Trials

The possibility of infringement act

Evidence Collection

Court Procedure Invalidation Proceedings

Continuation ofCourt Procedure

Suspension of Court procedure

Preliminary Injunction

1st & 2nd Instances

Administrative LawsuitIn 1st & 2nd Instances

• Patent Infringement– Civil litigation

• Venue: where the infringer's home office is, or where infringement occurs

• SOL: 2 years from the date the patentee becomes aware or should have become aware of an infringing activity.

• Patent disputes: infringement assertions are a court matter, while invalidity challenges are put before the Patent Reexamination Board

Patent Rights Enforcement

Patent Enforcement

• Complaint– The complaint and the supporting evidence– File a complete but realistic complaint: a Chinese court does not

have to accept a complaint and can dismiss it on its own initiative

• Preliminary Injunction– Patent Law Article 65– Plaintiff must: (i) show there is direct infringement, (ii) show the

plaintiff is suffering or will suffer irreparable harm, and (iii) post a security bond

– Judicial Interpretations: court decides within 48 hours– 2011, 130 granted (98.23% granting rate)– Evidence preservation, 2011, 186 granted (93.42% granting rate)

Patent Enforcement

• Invalidity NOT as a Counterclaim– Court does not address the issue of validity– Validity issue is considered solely by the Patent Reexamination

Board (part of Patent Office)– Filing of an invalidity proceeding will not stay any civil action or

administrative action involving an invention patent but may stay a utility model

Patent Enforcement

• Damages– Court filing fee is calculated based on the damage claimed– Methods of measuring damages (i) monetary loss to the patent

owner, (ii) if (i) is not available, monetary profits to the infringer, (iii) if (i)-(ii) are not available, up to three times a reasonable royalty, or (iv) if (i)-(iii) are not available statutory damages of RMB10,000 to 1,000,000

• Trial– A bench trial conducted in one or two hearings– Tried by a panel of three judges with a majority verdict– Evidence obtained abroad must be notarized and legalized, and all

documents must be in Chinese

Patent Enforcement

• Trial (con’d)– A written judgment must be signed by the judge, clerk and sealed

by the people’s court– Prior decision may not be followed as precedent– In major cities, a body of law essentially based on precedent is

evolving that is enforced by the appellate courts

• Appeal– A litigant has a right of appeal to the people’s court at the next

higher level (High People’s court)– Two-instance trial system, the decision from the appellate court is

final

Infringement

• Claim Construction– Intrinsic evidence– Extrinsic evidence

• Determination of Infringement– Literal (all-limitation rule)– Doctrine of equivalents (e.g., dedication to the public rule)– Prosecution history estoppel/argument based estoppel– Indirect infringement (contributory and inducement)

Defenses

• Prior use• Experimental use• For regulatory approval purpose (Bolar Exception)• Prior art defense

SPC (2012): Zhongyi v. Shanghai Jiuying

• 2009 Zhongyi filed a complaint of patent infringement with Shanghai 2nd Intermediate People’s Court, on its utility model filed in April 2007 against Shanghai Jiuying

• Beijing High People’s Court finally affirmed claims 1-2 invalid and claim 3 valid.

• 1st instance court: accepted prior art defense and found non-infringement based on a prior art reference (2005) and common knowledge

• 2nd instance court: denied applying DOE based on estoppel and found non-infringement (no prior art defense due to the difference between the art and product)

SPC (2012): Zhongyi v. Shanghai Jiuying

• SPC on estoppel

only applicable when the applicant/patentee abandons certain claim scope himself by narrowing claims or construing claims narrowly

In this case, the patentee did not abandon any claim scope but the broad claims were declared invalid by the Board/courts. Thus, infringement was found under DOE.

Trade Secrets

• Definition– The Anti-Unfair Competition Law (effective September 2, 1993),

Article 10– It refers to “the utilized technical information and business

information which is unknown by the public, which may create business interests or profit for its legal owners, and which is maintained secrecy by its legal owners.”

• Misappropriation– Article 10, illegal means to acquire and breach of agreement

Trade Secrets

• Burden of Proof– P: (1) existence of trade secrets [including the carriers, specific

contents, commercial values of the trade secrets as well as the specific confidentiality measures taken to protect the trade secrets]; (2) the ownership; (3) proper measures to maintain; (4) the same information used by D; (5) access to the secrets; and (6) injury

– D: (1) public availability of the secrets; (3) improper measures to maintain; (3) different information being used; and (4) legal means to obtain

Trade Secrets

• Contract Law (1999)– Article 43: neither party may disclose or inappropriately exploit the trade secret obtained

in negotiating a contract, whether or not the contract is executed

• Company Law (2006)– Article 149: directors or managers of a company shall not illegally disclose the company’s

trade secrets

• Labor Law (1995)– Article 22: an employer and employee can enter into a confidentiality agreement

regarding the employer’s trade secrets in a labor contract

• Labor Contract Law (2008)– Article 23: an employer may impose confidentiality obligations on the employees in a

labor contract regarding the employer’s trade secrets

Trade Secrets

• Judicial Interpretations on Civil Cases Involving Unfair Competition

– Sufficient actions to keep confidential: 1. Limit the range where the confidential information can be known. The content of the

information shall be only open to relevant people who must know it;

2. Take such preventive measures as locking the carriers of the confidential information;

3. Label confidentiality indications on the carriers of the confidential information;

4. Use passwords or codes for the carriers of the confidential information;

5. Sign confidentiality agreements;

6. Limit visitors to or propose confidentiality requirements as for the machines, workshops, and others locations related to the confidential information;

7. Other reasonable measures to maintain confidential information

Trade Secrets

• Contractual Protection of Trade Secrets– Confidentiality Agreement– Non-compete Agreement, limited to senior managers, senior technical

personnel, or others with confidential obligations– License Agreement: clauses relating to definition of confidentiality

information, obligations of the licensee, time period, termination of contract, right to audit for compliance, etc [additional CDA with licensee’s employees, request licensee to set up policies]

– Other Agreements

Thank you!

Qinghong Xu, Ph.D., J.D.

Lung Tin International Intellectual Property Agent Ltd.

Tel: 86 10 84891188

Fax: 86 10 84891189

Email: LTBJ@lungtin.com