The Chinese Patent Law, since its enactment on March 12, 1984 (effective April 1, 1985) was previously revised on September 4, 1992 (effective January 1, 1993) and on August 25, 2000 (effective July 1, 2001); while the draft of the third revision of the Patent Law (“Patent Law (Draft Revision 2006)”) is expected to be finalized in 2008 after the current 2000 version has been effective for eight years as were all of its predecessors.

The draft of the third revision was released for comments on July 31, 2006 by the State Intellectual Property Office (“SIPO”) and was further revised and submitted as a draft for review to the Judicial Committee of the State Council on December 27, 2006. It should be pointed out that the SIPO released its revised administrative guidelines, i.e., the Patent Examination Guidelines (“Examination Guidelines (Revised 2006)”) on July 1, 2006. Also, a revision of the Implementing Rules of the Patent Law (“Patent Rules”) is expected to follow this revision of the Patent Law. Task forces were set up earlier this year to conduct research and to prepare an initial draft for the third revision of the Patent Rules.

In this article, certain issues that are pertinent to foreign businesses and practitioners are summarized. The presentation here is mainly based on the Patent Law (Draft Revision 2006) to provide a general picture of the proposed law changes and also touches upon certain practical issues mentioned in the Examination Guidelines (Revised 2006).

Novelty and Inventiveness

On the novelty of patents, the current Chinese Patent Law adopts blended standards: An absolute standard is applied to publications, i.e., a publication anywhere concerning a relevant invention is deemed as a prior art; whereas a relative standard is applied to other means of disclosure if the art is publicly known or used in such a way that the disclosure constitutes a prior art only if it occurs in China. Based on the Patent Law (Draft Revision 2006), however, the relative novelty standard is likely to be changed into an absolute one so that the boundary limitation attached to the publicly known or used prior art is expected to be removed. Therefore, invention patent applicants should keep an invention from being disclosed by any means anywhere before filing a patent application in China.

For the issue of inventiveness, or non-obviousness of inventions under the US patent system, the name of a legal fictional figure referred to as “a person of ordinary skills in the art” is inserted into the patent law’s legal definition of inventiveness. Based on the Patent Law (Draft Revision 2006), the inventiveness of an invention is defined as being an invention having significant substantive characteristics to “a person of ordinary skills in the art” and constituting a substantial technological advance in the field. The draftsmen of the revision intend to give some guidance to patent practitioners, the patent office and the court on the somewhat confusing issue of inventiveness. It is also worth noting that for design patents, as will be further elaborated upon below, a thin inventiveness requirement is newly adopted in the draft revision of the patent law.

Crossover of Invention and Utility Model

For an invention based on physical products, one may file patent applications for both invention and utility model, even though only one patent for either an invention or utility model can ultimately be obtained. The Chinese utility model patents are similar to the German and Japanese utility model patents; however, U.S. and some other foreign entities often overlook the Chinese utility model patents when seeking patent protection in China.

Where an applicant has an issued patent and a pending patent application which are based on the same invention, and the patent application is allowable for issuance based on the Examination Guidelines (Revised 2006), the applicant has two options: Abandon the patent right of the issued patent (for example, a utility model patent), or withdraw the pending patent application (for example, an application for invention patent). If the applicant chooses to abandon the issued patent, however, he must claim to abandon it effectively from the filing date of the issued patent.

The Patent Law (Draft Revision 2006) added a clause to address the above issue, such that if applications for an invention patent and for a utility model patent based on the same invention were filed on the same day by the same applicant, the applicant may take advantage of the crossover of the invention and utility model applications.

It should be noted that an applicant might take advantage of the crossover of the applications for an invention patent and utility model patent when filing the applications in China through the Paris Convention, but that at the national entry into China for a PCT application, the applicant has to select either invention or utility model, but not both.

Design Patents

Design patents now account for one-third of Chinese patents, but the quality of many design patents is of much concern. Unlike the two prior revisions, the third revision of the patent law and rules will cast more light on the rule changes for design patents.

The statutory requirements for design patents are likely to be tightened to make it more difficult in many cases for applicants to obtain design patents on their designs. The current patent law requires only that, to be patentable, a design shall not be identical to or similar with any prior design, and, as defined in the Examination Guidelines, the sameness or similarity is judged by ordinary customers, whereas in the Patent Law (Draft Revision 2006), a thin inventiveness requirement is newly added such that to an ordinary designer in the relevant field the design shall be substantially distinguishable from any prior design or a combination of the features of a prior design.

On the other hand, the scope of patentable subject matters for design patents is expected to be further restricted so that attention will be shifted more to the design of a product itself rather than the design of the identity of the product, while the subject matter of the latter often overlaps with that of trademarks and copyrights. Based on the patent law draft revision, patterns, colors or a combination of patterns and colors of a plane printed matter that are intended mainly for a product’s identification are no longer patentable.

To determine the scope of protection for a design under the current law, only drawings or photographs of the product in the design application are considered, whereas the description of the design need not be submitted. The draft revision of the patent law provides that applicants have to provide a brief description of the design in the application documents and that a brief description can be used to describe the drawings or photographs. This new clause is obviously helpful to enhance the clarity and certainty of the determination of the scope of protection for the design.

For multiple designs, the new law adopts a more flexible approach. The current law provides that an applicant may file two or more designs in a single application for designs of products that fall in the same class and are sold or used in a set. On the top of the above clause, the draft revision for the first time adopts a mechanism for filing a single application including multiple similar or related designs of a single product.

While addressing the heightened statutory requirements on design patents as mentioned above, the draft revision also introduces a search report system to enhance the enforceability of design patents. Based on the draft revision, when filing litigation or an administrative action against others, the patentee of a design patent should submit to the court or administrative department a search report produced by the state patent administration.

Divisional Applications

Previously, an applicant could continuously file divisional patent applications to keep a rejected application in force. Based on the Examination Guidelines (Revised 2006), a sub-divisional application may still be filed based on a divisional application, however, the time limit to file such sub-divisional application will now be governed by the status of the initial application rather than that of the parent patent application. It is indicated that the Chinese government intends to limit the opportunities for filing divisional applications.

Further, it should be noted that the type of the application, either for an invention patent or for a utility model patent, may not be changed with the filing of the divisional or sub-divisional application, i.e., the type of the divisional application must be the same as that of the initial application.

Foreign Filing License and Patent Export Control

The current patent law requires Chinese individuals and entities to first file applications in China for inventions made in China. The Patent Law (Draft Revision 2006) extends this requirement to both Chinese and foreigners such that a foreign filing license from the state patent administration is required for “any individual or organization” to file a patent application in a foreign country if the application is based on “an invention made in China.” The implementation of more detailed rules is one of the important issues for the upcoming revision of the Patent Rules.

To reinforce the governmental control on foreign filing of patent applications based on inventions made in China, a penalty provision has been added in the draft revision of the patent law. Based on such penalty provision, if a person filed a patent application in a foreign country based on an invention made in China without permission from the Chinese patent administration, the person’s patent application filed later in China based on the same subject matter will be denied approval in China.

On the related issue of patent export control, the Examination Guidelines (Revised 2006) prescribes that any legal entity, individual or organization in China，for the purpose of transferring its rights of a patent or of a patent application to a foreign entity shall obtain a permit for regulated technologies from the Ministry of Commerce, or a recordation for freely exportable technologies from either the Ministry of Commerce or a local administration of commerce.

Administrative Enforcement

Enforcement of patent rights protection has been one of the major concerns for the effectiveness of China’s IPR system. The Chinese legislation intends to further empower the patent administration to handle patent disputes.

As reflected in a newly added clause to the Patent Law (Draft Revision 2006), the legislation intends to give the patent administration handling cases of patent infringement or patent counterfeiting, the power to examine the alleged infringing party and other relevant parties, to inspect the premises of the alleged infringing act, to inspect or copy relevant documents, and, if reasonable evidence of the illegal activities is provided, the power to seize or confiscate relevant products or equipment.

To curb patent counterfeiting, the legislature intends to build a more powerful patent administration to take action against such particularly egregious patent violations. For acts of forging another’s patent, the draft doubled the amount of administrative fines from RMB 50,000 to RMB 100,000. For acts of falsely representing a non-patented product or method as a patented product or method, the patent administration may confiscate any illegal gain and fine the patent violators for up to three times the sum of the illegal gain, or up to RMB 100,000 if no illegal gain can be found.

Patent Infringement

To enhance the deterrence against patent infringements, the Patent Law (Draft Revision 2006) provides more specific and stringent damages measures for patent infringement. The statutory damages are expected to be between RMB 5,000 and RMB 1,000,000 in cases where the actual loss of the patent owner, illegal gain of the infringer and reasonable royalties of a patent license are uncertain. Here, the statutory damages cap of RMB 1,000,000 is doubled from RMB 500,000 under the current law.

For willful infringement, the draft revision states that if a judgment is made, the patent administration has the power not only to order the infringing party to stop the infringement, but also to confiscate the illegal gain and impose a fine upon the infringing party. The fine could be up to three times the illegal gain or up to RMB 100,000 if no illegal gain can be found.

On the other hand, in keeping with the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS), the Patent Law (Draft Revision 2006) introduces two provisions of limited exceptions to the exclusive rights conferred by a patent. First, the draft revision provides that, after the first sale of a patented product or a product acquired directly through a patented method, either being marketed by the patent owner or with the patent owner’s permission, the “importation” of such a product is defined as not constituting infringement. Thus, under such provision, parallel or grey-market imports are permissible. Second, the draft revision newly introduced the “Bolar” exemption that the manufacture, use, or importation of patented pharmaceuticals or patented medical devices solely for obtaining and providing data required for regulatory approval of a drug or medical device is permissible.

Patent Misuse and Unfaithful Proceedings

To protect the legitimate interests of the public, the Patent Law (Draft Revision 2006) adopts provisions on prior art defense and malicious prosecution. For the prior art defense, the draft states that in a judicial or administrative proceeding for patent infringement if the defendant can forward sufficient evidence showing that the patented subject matter falls within the scope of the prior art, the defendant’s conduct shall be held as not constituting infringement.

The draft further provides that where a patent owner knew that his patented art belongs to a prior art, but nevertheless unfaithfully brought an action against another party in an administrative or judicial proceeding for patent infringement; the patent owner will be held liable to the alleged infringer for damages caused by the unfaithful accusation.

Addressing the issue of unfaithful proceedings, the draft also provides that if a patent owner, through his conduct, expression or silence, caused another party who practices the patented invention to reasonably believe that the patent owner was not and would not claim the patent rights, but the patent owner later brought an action against the other party before a court or patent administration, the patent owner’s claim will be deemed as against the principle of faithfulness and honesty. Thus, the patent owner will be held to have no right for compensation for the period prior to the date of the action and not have the right to ask the court or patent administration to order the other party to cease practicing the invention.

Compulsory Licenses

The Patent Law (Draft Revision 2006) also includes significant changes to provisions on compulsory licenses of patents for the purpose of protecting the legitimate interests of the public. The draft provides that the patent administration may grant a compulsory license, upon request, for the use of a patented invention or utility model if the patent owner, without any legitimate reason, has not practiced or adequately practiced the patented invention for three years after issuance of the patent, or if the patent owner’s practice of the patented invention is deemed by the authority as unfairly excluding or restraining competition.

To implement China’s commitment under the Doha Declaration on the TRIPS Agreement and Public Health adopted by the WTO Ministerial Conference in 2001, the Patent Law (Draft Revision 2006) addresses the issue of compulsory licenses for limited purposes, such as for state emergencies or public interest. The draft stipulates that public health crises caused by epidemics constitute a state emergency, and the prevention, treatment, and control of the spread of epidemics all fall under the public interest banner. The draft also addresses the issue of compulsory licenses to provide that the manufacturing and export of patented pharmaceuticals that treat epidemics to help underdeveloped countries that do not have any, or sufficient capacity to manufacture pharmaceuticals to treat epidemics.

Disclosure of Genetic Resources

China is rich in genetic resources and traditional knowledge. For the third revision of the patent law, much of the discussion focused on the protection of genetic resources in China.

For the first time under the Chinese patent law, the draft of revision introduces special measures to protect genetic resources. It is stipulated in the draft that the source of a genetic resource should be disclosed in the specification of a patent application if the accomplishment of the invention relies on the acquisition and use of the genetic resource.

In the draft, it is further stipulated that no patent shall be granted to an invention if acquisition or use of the genetic resource for the accomplishment of the invention violates relevant laws and regulations. Detailed requirements for the disclosure of genetic resources are expected to be worked out later in the revision process of the Patent Rules.

Designation of Patent Firms to Handle Foreign-Related Matters

The current Chinese Patent Law, since its enactment in 1984, has a special clause which empowers the state patent administration to designate certain patent agencies to handle foreign-related maters for patent prosecution. According to such clause, any domestic Chinese applicants who intend to file patent applications abroad or any foreign applicants, who intend to file patent applications in China, must entrust a Chinese patent agency designated by the state patent administration. It is obvious that such governmental designation as defined in the patent law becomes obsolete and unfair.

Under the Patent Law (Draft Revision 2006), however, the above requirement of designation will no longer be required. Thus, foreign applicants may entrust any legally formed patent agency in China to represent their patent applications in China, and on the other hand, domestic Chinese applicants may entrust any legally formed patent agency in China which ultimately works together with a foreign law firm, or even directly entrust a foreign patent firm to file their patent applications in a foreign country.

(The English version of this article is provided by the author.)
About the author: Charles C. Liu, Ph.D., J.D., Partner, Unitalen Attorneys at Law