Intellectual Property

In 2004, China saw 353,807 patent applications filed at the State Intellectual Property Office ("SIPO"). SIPO granted 190,238 patents in 2004, an increase of 4.4 percent over 2003. Of these, 151,328 went to Chinese applicants and 38,910 to foreign applicants. In China, as elsewhere, more granted patents inevitably mean more litigation. In 2004, holders of Chinese patents filed 2,549 new patent suits, an increase of about 20 percent over 2003 (and only 506 fewer than the number filed in the U.S. that year). While foreign parties have brought fewer than 5 percent of these cases so far, they increasingly are becoming involved in such litigation as either defendants or plaintiffs. It is likely that in the foreseeable future, patent litigation will become an important part of business strategy for multinational companies operating in China. Therefore, it is essential for multinational companies to understand how to litigate patents in Chinese courts.


Procedure

The Court System. China's judicial system consists of four levels of courts: (1) the Basic People's Court, (2) the Intermediate People's Court, (3) the Higher People's Court, and (4) the Supreme People's Court.

The Supreme People's Court is the highest court in China. Along with handling appeals from the Higher People's Courts, it serves an administrative role, in which it issues judicial interpretations that are legally binding upon lower courts. There is one Higher People's Court in each province and autonomous region (e.g., Tibet), as well as certain large cities that have the rank of province, such as Beijing, Shanghai, and Tianjin. Each major Chinese city has one or two Intermediate People's Courts, and each county, or district, in each major city has one Basic People's Court. China has a "two-instance" judicial system—the decisions of the court of first instance can be appealed to the court at the higher level, which makes what essentially is a final decision.

Because of the complexity of patent cases, the Supreme People's Court has designated approximately 50 courts around the country (mostly Intermediate People's Courts) as first-instance courts for adjudication of patent infringement claims. If the damages claimed are above CNY 100 million (about US$12 million), Higher People's Courts are the courts of first instance for such cases.

Jurisdiction. Patent infringement cases must be filed where the infringer is domiciled or in the place of infringement. Places of infringement include not only the places where the infringing acts actually have occurred but also any place affected by the consequences of infringement. To avoid litigation in a defendant's home court, plaintiffs may wish to join distributors of the infringing product located in jurisdictions more favorable to the plaintiffs as additional defendants.

Limitations Period. China has a two-year statute of limitations for patent infringement, which runs from the date on which the patentee knew or should have known about the infringement. For continuing infringement, the patentee can usually obtain an injunction against the infringement even if it failed to investigate within the two-year limitations period, provided that the patent rights are still in force, but damages will be limited to those suffered in the last two years.

Bifurcated Proceedings. China is a civil-law country and has adopted many aspects of the German patent law system. For example, like Germany, China has a split system, with infringement determined by the courts and invalidity challenges heard by SIPO's Patent Reexamination Board. (For more information on Chinese invalidation proceedings, please see "Are Your Chinese Patents At Risk?" in the January 2005 issue of Intellectual Property Today, or visit www.jonesday.com/pubs/ pubs_detail.aspx?pubid=699903.) Some infringement actions can be stayed in favor of SIPO invalidation proceedings— generally those involving design
for the issuance of such injunctions by urging the lower courts to use caution in issuing preliminary injunctions and noting that preliminary injunctions should not be issued in cases involving nonliteral infringement or complicated technologies.


Evidence

Because there is no U.S.-style discovery in China, plaintiffs must collect and submit their own evidence to meet their burden of proof regarding, inter alia, patent infringement and damages. Chinese courts generally accept evidence only in its original form. Such evidence can come from private investigations, raid actions, overseas litigation, or defendants' employees. A notary public is often used to authenticate evidence. Evidence obtained from previous administrative proceedings or preliminary injunction proceedings sometimes can be used in subsequent infringement litigation. However, evidence obtained in violation of the law is not admissible and, if admitted, may constitute reversible error on appeal. Therefore, proper and thorough gathering of evidence before and during the initial stages of litigation is critical to Chinese practice, and the importance of evidence-related planning and strategy to the overall success of any patent litigation in China cannot be overstated.

Overseas Evidence. Evidence obtained in foreign countries is admissible in Chinese courts but must be notarized by a local notary public in the foreign country and then legalized by the applicable Chinese embassy or consulate. Any documentary evidence in a foreign language must be translated into Chinese by a court-authorized translation company.

Evidence Preservation. Article 65 of the Chinese Civil Procedure Law is as follows: "The people's court shall have the right to investigate and collect evidence from the relevant units or individuals; such units or individuals may not refuse to provide information and evidence. The people's court shall verify the authenticity, examine and determine the validity of the certifying documents provided by the relevant units or individuals."

Yet while Article 65 empowers a court to seek evidence from any relevant party, it is seldom used in practice. A more frequently used procedure in patent litigation is "evidence preservation," as provided under Article 74 of the Chinese Civil Procedure Law: "Under circumstances where there is a likelihood that evidence may be destroyed, lost, or difficult to obtain later, the participants in the proceedings may apply to the people's court for preservation of the evidence. The people's court may also on its own initiative take measures to preserve such evidence."

Thus, if it appears that evidence may be destroyed, lost, or difficult to obtain later, a party may seek ex parte a court order to preserve such evidence. The court may order the requesting party to post a bond. An evidence preservation order is typically enforced by the judges themselves. Such orders can be very effective, as the respondent generally will not be notified in advance and may be required to comply by providing the relevant documentation and evidence on the spot. In the execution of the order, the court may question the respondent, order production of documents, take samples of the infringing product, conduct an inspection of premises, and so on. Any evidence obtained from evidence preservation efforts should be admissible in the subsequent court proceeding. Therefore, evidence preservation has become a powerful tool in patent litigation in Chinese courts. To prevent its abuse, however, most courts will require that the movant present some preliminary evidence showing ongoing or imminent infringement before issuing such an order.

Evidence Presentation. Evidence must be submitted to the court within a prescribed time limit. Generally, the time limit will be designated by the court and must not be less than 30 days from the day after the parties receive notice of the court's acceptance of t
the extent of protection of a patent right is determined not only by the scope defined by the indispensable technical features specifically mentioned in the patent claims but also by the scope defined by the technical features that are equivalent to these indispensable technical features, which are referred to as equivalent features. An equivalent feature is a technical feature that can be conceived easily by a person skilled in the art without inventive skills and that performs substantially the same function in substantially the same way and achieves substantially the same result as the feature in the claims.


Prosecution History Estoppel. As with the doctrine of equivalents, there is no statutory basis for the application of the doctrine of prosecution history estoppel. However, the doctrine has been applied in patent infringement cases in China, especially by the Beijing Higher People’s Court. As the doctrine has been adopted by Chinese courts, the patentee is estopped from claiming the subject matter limited, removed, or abandoned during the patent examination or invalidation proceedings by way of written statements or amendments to obtain the patent. The doctrine is applied at the request of a party, and the party must furnish the relevant evidence. SIPO can provide copies of the relevant patent files upon request.

Remedies

The two most common remedies for patent infringement are permanent injunction and monetary damages. Once infringement is established, permanent injunction is generally issued as a matter of law. Infringement damages are assessed on the basis of the following factors, in descending order of importance: (1) the actual loss suffered by the patentee; (2) the profits made by the infringer due to infringement; (3) a multiple of reasonable royalty; or (4) quasi-statutory damages. If neither the patentee's loss nor the infringer's gain can be ascertained, damages are calculated with reference to the reasonable royalty of a patent license. According to a judicial interpretation issued by the Supreme People's Court, damages can be a multiple, normally between one and three times, of the reasonable royalty. If there is no such royalty, or if the royalty is obviously unreasonable, courts often resort to quasi-statutory damages ranging from CNY5,000 (US$620) to CNY500,000 (US$62,000). The court may, at the request of the patentee, include reasonable expenses and all or part of attorneys' fees into the damages award. However, recovery of all attorneys' fees is unlikely.

If the infringer's profits are to be used as a basis for assessment of damages, evidence preservation becomes an essential tool to enable the patentee to obtain the necessary sales and accounting information from the defendant. In practice, the assessment of damages is often a difficult and complicated process, which explains why damages awards in China are often very low by U.S. standards (as they tend to be in most countries with civil law systems and limited or no discovery, such as Germany). However, there is no statutory limit on the amount of damages that can be awarded, and some Chinese judges have stated that they would award high damages if presented with admissible evidence to support them.

Conclusion

While patent litigation in China is still in its infancy, China is becoming a fertile ground for patent disputes, not just between Chinese and multinational companies but also among multinational companies. Contrary to widespread belief, multinational companies with sufficient skill, experience, and understanding of the Chinese system can successfully enforce patents in China. Moreover, as Chinese companies quickly evolve from blatant imitators to innovators, they are finding that asserting their domestic patents against multinational companies in China is an effective way to stake their claims in battling what they consider to be "foreign technology encroachment."

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