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April 30, 2006

Patent Litigation in China

Litigating a patent in China is a different dragon altogether than in the U.S. With both patent grants and litigation rising, the legal system China has now is a wild frontier for protecting inventions.

In 2004, China's State Intellectual Property Office ("SIPO") had nearly as many patent applications as the U.S. 2004 saw a 20% jump in litigation suits filed, to 2,549. Foreigners were plaintiffs in only 5% of the filings, but the trend is upwards.

China's judicial system has four tiers: 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. Around 50 courts, mostly Intermediate People’s Courts, are designated to handle patent cases. If damages claimed exceed US $12 million, the case is kicked up to the Higher People’s Court.

The venue for filing is either where the infringer's home office is, or where infringement occurs. A place of infringement may be either where an infringing act occurred, such as the place of manufacture or sale, or any place affected by the consequence of infringement. Plaintiffs may avoid a defendant's home court by filing suit where a distributor of an infringing product is located.

China has a two-year statute of limitations for patent infringement, from the date which the patent holder knew or should have known about infringement. Damages are limited to two years. If infringement is ongoing, a patent holder may be able to get an injunction, regardless of the statute of limitations.

China's judicial system with regard to patent law is largely adopted from Germany. Like Germany, China bifurcates patent disputes: infringement assertions are a court matter, while invalidity challenges are put before SIPO's Patent Reexamination Board. It is possible that a court trial for infringement may be stayed pending a reexam, but China has a strong presumption of validity. Still, if asserting a patent, expect a parallel validity challenge. If not stayed, an infringement action may take six to 18 months if not stayed. A SIPO reexam is slower, so it is not anomalous that infringement is decided on a patent later deemed invalid.

Article 61 of the Chinese Patent Law authorizes both preliminary and permanent injunctions. China is quick to act on a request for a preliminary injunction: a court must make a ruling within 48 hours, if procedural requirements have been properly met. An issued injunction is immediately enforceable. As in the U.S., getting a preliminary injunction in China is not easy, with the court making similar considerations. China's Supreme People's Court recently issued a caution to lower courts regarding preliminary injunctions.

China has no discovery process, as in the U.S. Plaintiffs have to collate and submit their own evidence regarding infringement and damages. Chinese courts are quite prickly about evidence. All evidence is presented in Chinese. Foreign evidence is allowable, but must be translated by a court-sanctioned translation company. Evidence must be notarized. Evidence obtained by violating the law is not admissible, but, if admitted, may comprise reversible error on appeal. Thus, meticulous evidence gathering is crucial to any patent litigation in China.

The Chinese courts use their own expert witnesses in some cases. The court may also allow expert witnesses representing a party in a case.

Claim construction and infringement analysis occur at trial. There is no two-step infringement analysis, as in the U.S., no Markman-like preliminary claim construction. Chinese judges 1) construe the scope of the patent, 2) analyze the relevant characteristics of the accused product, 3) compare the technical features claimed to those of the accused product.

While there is case law precedent for a doctrine of equivalents, DOE has no statutory basis in China. Likewise prosecution estoppel.

Remedies for patent infringement in China are similar to the U.S.: a permanent injunction and monetary damages. Once infringement is adjudged, a permanent injunction is typically issued as a matter of law. Damage assessment is like that of the U.S., with a default to reasonable royalty if sufficient evidence of loss by an infringed or profit gain by an infringer cannot be determined. There is not statutory limit on damages, but, as evidence standards are so high, making damage estimates extremely tricky, damages awards in China tend to be very low compared to the U.S.

Patent litigation is in its infancy in China, but it is possible for a foreign company to enforce patent rights in China, given sufficient will and patience to master the Chinese system. Like Japan 40 years ago, Chinese companies are transitioning from imitation to innovation, and are increasingly willing to battle what they consider "foreign technology encroachment."

Posted by Patent Hawk at April 30, 2006 2:17 PM | International

Comments

Chinese patent rules do have DOE in Article 17 of the juridical interpretation of " Several Provisions of Application of Laws in Inquisition of Patent Dispute Cases," effective July 1, 2001.

Posted by: Annie at September 22, 2008 2:00 AM