THOMSON REUTERS
Westlaw Today
Enter to open, tab to navigate, enter to select
Navigating China's patent law reform: Strategic insights for foreign companies
2024 PRINDBRF 0085
• Practitioner Insights Commentaries
• February 15, 2024
(February 15, 2024) - Quarles & Brady attorney Lu Yin and Shuang Ma from the Chinese law firm Leader Patent & Trademark Firm provide some insight into China's patent system, focusing on recent changes affecting the law's doctrine of "good faith."
Introduction
The recent overhaul of China's patent law, effective from June 1, 2020, introduced significant changes to the intellectual property rights framework; the incorporation of a good faith doctrine being among the most impactful. The reform is a pivotal development for foreign companies operating in China, especially U.S. entities, as it directly affects patent filing and enforcement practices.
Article 20 of the revised law mandates that "Patent filing and enforcement of patent rights shall follow the good faith doctrine. Patent rights shall not be abused to harm public interests or the legitimate rights of others." This provision is a legislative effort to curb the misuse of patent rights and mitigate the risks posed by patent trolls and hijackers. Recent decisions from Chinese courts indicate the intention to enforce the good faith doctrine in terms of both the ownership and assertion of patent rights.
For foreign companies, understanding and leveraging this new doctrine is crucial for protecting their intellectual property in China's vast and dynamic market.
The good faith doctrine explained
The good faith doctrine, as detailed in the revised "Patent Law Implementing Regulations and Patent Examination Guidelines," outlines the consequences of violating this principle, particularly focusing on bad faith patent filings.
Rule 11: This rule is pivotal in highlighting the good faith doctrine's centrality to patent practices. It mandates that "patent applications must be founded on genuine inventive activities and devoid of any falsehoods," underscoring the commitment to integrity and authenticity in the patent application process.
Rules 50, 59, and 69: These rules extend the doctrine's reach, establishing that any infringement of the good faith principle constitutes grounds for the rejection of patent applications during both preliminary and substantive examination phases. Furthermore, such violations are recognized as valid reasons for patent invalidation during the invalidation proceedings. Notably, the Guidelines introduce the concept of Ex Officio invalidation based on good faith violations, expanding the enforcement scope of this doctrine.
Article 100: This article delineates the administrative penalties associated with breaches of Rule 11, specifying that "applicants or patentees in contravention of this rule will be subject to warnings and may incur fines up to RMB 100,000," as imposed by the patent enforcement departments at or above the county level. This provision serves as a deterrent against unethical patent practices, reinforcing the legal framework's commitment to upholding the good faith doctrine.
The revised guideline outlines eight distinct behaviors that contravene the good faith principle:
(1) Redundancy in patent applications: Submitting multiple patent applications that exhibit clear redundancy, either through identical invention-creation content or through mere aggregation of various features and elements without substantive innovation.
(2) Misrepresentation and plagiarism: Engaging in the fabrication, forgery, or alteration of invention-creation details, experimental data, or claimed technical effects. This includes plagiarizing existing designs or prior art, making unsubstantiated substitutions, or assembling elements from various sources without genuine innovation.
(3) Artificial invention generation: Filing patents for invention-creations predominantly generated by random computer algorithms, lacking a foundation in actual research or inventive step.
(4) Deviations from logical improvement: Proposing invention-creations that stray from logical advancements in technology or design, characterized by degradation in quality, unnecessary complexity, or unwarranted limitations on the scope of protection.
(5) Unsubstantiated filings: Lodging multiple patent applications without conducting substantive research or providing reasonable justifications for the inventions claimed.
(6) Strategic misuse of the filing system: Deliberately scattering, sequentially filing, or submitting patent applications in various locations tied to specific entities, individuals, or addresses with the intent to manipulate the patent system.
(7) Unethical licensing and assignment: Unfairly licensing or transferring patent application rights for illegitimate purposes, or dishonestly altering the identities of inventors or designers to mislead or deceive.
(8) Disruptive filing behaviors: Engaging in any other unusual patent application practices that disturb the orderly conduct of patent work and breach the good faith doctrine.
Patent enforcement conduct that breaches the good faith principle is not enumerated in specific regulations akin to those governing patent applications but is instead established through judicial precedents. Courts evaluate the adherence to the good faith principle as a key metric in assessing the legitimacy of patent litigation. Determinations of bad faith consider a comprehensive array of factors.
For example, if a patent holder, aware that their claimed invention has been previously disclosed in prior art, nonetheless pursues an infringement claim with excessive damages or seeks unwarranted injunctive relief, such actions may be construed as an intent to unduly prejudice the defendant's interests. Under these conditions, judicial bodies may rule that the patent holder's conduct constitutes an infringement of the good faith principle.
Implications for foreign companies
The introduction of the good faith doctrine into China's patent law reform brings to light behaviors that have been exploited by patent trolls and hijackers. These entities often engage in preemptive filings, targeting new technologies and early patent applications to secure rights before the actual inventors.
Patent hijackers pose significant challenges for foreign companies by tracking emerging technologies and product launches and filing patents in these new domains, including monitoring early patent filings and quickly registering related patents in the same area, often before the true inventor has had a chance to secure their rights.
For foreign companies, particularly from the U.S. and other innovation-driven economies, understanding these tactics and ensuring compliance with the good faith doctrine is crucial for protecting their intellectual property interests in China.
Implementation of the law and case studies
Case 1: Addressing patent infringement litigation tactics
An illustrative patent infringement litigation, underscored by the good faith doctrine, involved Borui Runxing Company's series of legal actions against Zhongliang Distribution Department.
The sequence of events unfolded as follows:
•In 2021, Borui Runxing Company initiated a trademark infringement lawsuit against Zhongliang Distribution Department, identified as Case No.1424.
•On February 18, 2022, the parties settled, with Borui Runxing Company receiving a one-time payment.
•Subsequently, on June 13, 2022, Runde Hongtu Company, an affiliate of Borui Runxing, pursued a patent infringement claim against Zhongliang for the same product and sales activities previously contested in Case No.1424.
The critical issue addressed in court was whether Runde Hongtu's patent infringement lawsuit contravened the good faith doctrine, constituting an abuse of rights. The legal scrutiny revealed that the two affiliated companies engaged in a coordinated legal strategy that appeared collusive — relying on a single evidence collection for two separate litigations and not providing full disclosure during the mediation of the trademark case.
This approach was ultimately adjudged by the court to breach the good faith doctrine, constituting an abuse of rights.
Case 2: Confronting patent hijacking in ownership disputes
In a dispute concerning patent ownership, Rosalula Company petitioned the court to affirm that the design patent titled "Wine Bottle (1818 Limited Edition Dry Red)," registered to Zhongge Company, was rightfully theirs.
The sequence of events was as follows:
•Rosalula Company had sold the wine bottles featuring the disputed design to Zhongge Company.
•Zhongge Company then tasked a patent agency with filing a design patent application for the same bottles they purchased from Rosalula.
•Upon examination, the court found that Zhongge Company's actions, predicated on the business relationship with Rosalula Company and subsequent patent application for the traded design, contravened the principles of good faith. The initial ruling, which the appellate court affirmed, stated that Zhongge's act of obtaining and then patenting the design infringed upon the good faith doctrine, thus the design patent should not be granted protection, notwithstanding the first-to-file status.
These cases exemplify the judicial application of the good faith doctrine in determining the legitimacy of patent-related actions, whether in infringement claims or ownership disputes. They highlight the courts' vigilance against practices that exploit the patent system and emphasize the importance of transparency and ethical conduct in patent dealings.
Considerations for foreign companies
The emphasis on the good faith doctrine within China's patent law has strengthened the legal framework, creating a more reliable and equitable system for protecting patents. It offers a meaningful defense for innovating companies and provides the public with advanced legal tools to combat baseless patent challenges.
When allegations of patent infringement arise, assessing the validity of the patent in question against the good faith doctrine is essential, involving both legal and technical scrutiny appropriate to the technology involved.
For instance, in examining a patent related to a chemical substance, the legitimacy of the technical solution claimed is critical. The verification process could involve scientifically replicating the experiments listed in the patent filing to confirm their authenticity.
Additionally, it may require a detailed review of the technical parameters of the patent to ensure they are in line with scientific principles and do not present any scientific inaccuracies. Furthermore, an exploration into the history of the patent's development could be helpful, which involves looking into whether there has been significant research and investment in the technology that led to the invention.
For foreign companies operating within China's legal system, aligning patent strategies with the principles of good faith is essential to avoid legal complications. To begin with, companies should adhere strictly to the regulations that define bad faith behaviors in patent applications. It's crucial to avoid disclosing any aspect of the technology publicly before securing a patent filing, as premature disclosure can jeopardize the patent's validity.
When it comes to litigation, a comprehensive review of the patent in question is necessary. This includes examining all documentation related to the patent, not just the patent text itself but also any statements or supporting materials submitted during the patent process. Such thorough preparation can reveal the patent's complete narrative, providing a strong foundation for defense or enforcement.
To protect intellectual property, foreign companies should proactively safeguard their inventions and prepare for potential legal disputes in China. Here are some strategies:
Early patent filing: To establish legal precedence, companies should file their patent applications as early as possible. Timely filing is a critical step in securing the intellectual property rights of an invention, as it prevents competing entities from filing for the same invention and potentially gaining rights over it. Establishing an early filing date is particularly crucial in China, where the patent system operates on a first-to-file basis.
Diligent patent monitoring: Companies should actively monitor patent filings within their operational sectors. This proactive measure is not just about safeguarding against infringement but also about identifying patents that may be similar to their own, which could signal potential conflicts. Early detection of such issues allows companies to take preemptive measures, such as filing oppositions or seeking invalidations before significant legal conflicts arise.
Rigorous record-keeping: Maintaining detailed and accurate records of the invention process is vital. This includes documenting the steps of development, the individuals involved in the inventing process, and any research findings or prototypes. These records form the backbone of evidence to support a company's claim to originality and ownership, providing a clear lineage of the invention that can be indispensable during patent prosecution or litigation.
Long-term patent portfolio development: Looking beyond the immediate horizon, companies should file patents with a vision that extends to future products and technologies. This forward-thinking approach involves securing patent protection that encompasses potential future uses or iterations of their technology, thereby ensuring long-term competitive advantage and market protection.
Comprehensive compliance training: It is essential for research and development teams, along with legal departments, to have a solid understanding of the principles of good faith as they pertain to patent activities in China. Training should cover the spectrum of behaviors that constitute good and bad faith, ensuring that all actions, from patent filing to enforcement, adhere to the highest standards of ethical conduct to avoid any missteps that could be interpreted as bad faith.
Conclusion
The recent update to China's Patent Law, particularly the incorporation of the good faith doctrine, marks a meaningful shift for foreign businesses operating in China. This change and subsequent implementation impact how patents are filed and enforced, introducing a legal framework aimed at curbing patent misuse and addressing the challenges posed by patent trolls and hijackers.
The good faith doctrine, detailed in both the Patent Law Implementing Regulations and judicial decisions, sets clear expectations for patent application integrity and authenticity. It serves as a safeguard against the exploitation of the patent system, providing a mechanism to challenge dubious practices effectively.
For foreign entities, compliance with the good faith doctrine is crucial. This involves avoiding identified bad-faith behaviors and adopting strategic measures such as timely patent filings, diligent monitoring of patent activities, and maintaining comprehensive records of the invention process.
Moreover, educating teams on the nuances of China's patent system and the good faith requirements is essential. By aligning their patent strategies with these principles, foreign companies can navigate China's legal landscape more effectively, ensuring robust protection for their innovations while fostering an environment of genuine technological advancement.
Lu Yin, a partner in the Denver office of Quarles & Brady, is an intellectual property lawyer who focuses on patent prosecution, technology transactions and licensing, IP enforcement and IP litigation. His experience includes helping U.S. businesses navigate China's patent landscape and bridge the gap between U.S. companies and the dynamic Chinese patent environment. He previously worked as a patent examiner at the U.S. Patent and Trademark Office, as an in-house IP attorney, and as counsel at a global Am-Law 100 law firm. He can be reached at [email protected]. Shuang Ma is a partner in the Beijing office of Leader Patent & Trademark Firm. She is an IP lawyer and patent attorney who focuses on patent prosecution, IP litigation, patent invalidity action and consulting. She was one of China's first national experts in overseas IP disputes, and was employed as an IP expert for multiple expert databases managed by China's government. She can be reached at [email protected].
)
Lu Yin)
Shuang Ma| End of Document | © 2024 Thomson Reuters. No claim to original U.S. Government Works. |