Third Revision of Patent Law in China (Part II)

By Wenting Cheng

More than 20 years have passed since Patent Law in the People’s Republic of China came into force in 1985. The third amendment of Chinese Patent Law enters into force from 1 October, 2009. In addition to revision or repealing of provisions of Patent Law per se, patent-related laws, regulations and judicial interpretations also are undergoing major changes to facilitate the implementation. After a brief review of the background for the revision, this article explores the major changes in substantive requirements for patent grant, post-grant enforcement and adaptation of Chinese Patent Law to international norms on the protection of intellectual property.

This paper is the second part of a series (for Part I click here), covering patent exception relating to genetic resources and post-grant enforcement pertaining to assimilation of passing off patents into counterfeiting patents and the increase of threshold for penalty.

“Genetic material” means, according to the Convention on Biological Diversity, any material of plant, animal, microbial or other origin containing functional units of heredity. “Genetic resources” refers to genetic material of actual or potential value. Genetic resources, with their enormous economic potential, play an increasingly important role in the research and development of pharmaceuticals and new varieties of plants and animals. Driven by considerable profits, corporations from the developed world allegedly claim ownership of, free ride on, or otherwise take unfair advantage of, the genetic resources of developing countries.

China is one of the countries with abundant genetic resources and victim to a tremendous drain of genetic resources by biopiracy. Genetic materials from wild soybeans, Chinese gooseberry and even the famous Beijing duck have been taken away to develop hybrids which are patented and imported to China again. The estimated proportion of import to export of genetic resources from China is 1:10.¹

Existing provisions related to genetic resources are scattered in various laws and regulations of China, like the Animal Husbandry Law, Seeds Law, Environmental Protection Law and Law on the Protection for Wild Animals, etc. Up to now, there are no special provisions addressing the protection of genetic resources in China, and it is urgent that a solution be found.

The third revision of China’s Patent Law, for the first time, introduces patent protection on genetic resources. Patent Law (2008) adds a new section to Article 5 concerning exception to patentable subject matter: no patent shall be granted for any invention or creation that is completed depending on genetic resources of which the access or use violates provisions of State laws and administrative regulations.

Accordingly, Implementing Regulations for Patent Law (Draft for Comments) further defines genetic resources and invention-creation which is completed depending on genetic resources. “Genetic resources” in the Patent Law refer to any material that: is obtained from the human body, animals, plants or micro-organisms, contains a genetic functional unit, and is of actual or potential value. “Completed depending on genetic resources” refers to cases where the completion of the invention makes use of the genetic function of genetic resources.

Furthermore, the Guidelines for Examination (Draft for Comments) clarified the possible circumstances for “access or use of genetic resources that violates the stipulations of related laws and regulations.” The access or use of the genetic resources is not approved by relevant administrative agencies or licensed by the right holders in advance, which is inconsistent with national laws and regulations.²

Article 5 of the Patent Law (2000) prescribed an exception of patent protection on the basis of public order that “No patent shall be granted for any invention-creation that is contrary to the laws of the State or social morality or that is detrimental to the public interest.” However, the newly added section for the exception of patentability of invention completed depending on genetic resources follows a narrower and more stringent interpretation for “public order” which only includes national laws or administrative regulations. Therefore, provisions of a lower legal hierarchy, moral considerations and general public interest are excluded in this context as causes for public order.

The newly added section introduces the legal consequence of violating other relevant provisions. One of the preconditions of the newly added section is the establishment of a “prior informed consent regime.” Only after requirements of governmental approval and private licence for the access or use of the genetic resources have already been established in other laws and regulations may this provision apply in case these requirements are not satisfied. Consequently, the application will lead to the failure of patent grant. This provision, therefore, is intended to involve genetic resources in the patent law system by integrating relevant provisions and arming these scattered provisions with sanctions.

In addition, Patent Law (2008) incorporated one such requirement by itself in Article 26, stipulating “an applicant filing a patent application for an invention-creation completed depending on genetic resources shall indicate in the patent application document the direct and indirect source of the genetic resources; the applicant failing to indicate the original source of the genetic resource must provide an explanation.” Therefore, disclosure of the direct and indirect source of the genetic resources is also one precondition for a patent to be granted for inventions completed depending on genetic resources.

2.2 Changes to enforcement
A feature of the legal system in China is that the Supreme People’s Court (hereinafter referred to as SPC) and Supreme People’s Procuratorate (hereinafter referred to as SPP) of China are entitled to formulate judicial interpretations on issues concerning judicial enforcement. Such judicial interpretations are binding to courts of lower levels in terms of jurisdiction, application of law and other definitions of terminology, and are recognised as an integral part of the Chinese legal system. Therefore, in addition to laws and regulations mentioned, judicial interpretations are also an indispensable part of the patent system. When it comes to enforcement of Patent Law (2008), the Supreme People’s Court Interpretation on Several Issues Concerning the Application of Law in Handling Patent Infringement Cases (Draft for Comments) deserves adequate attention.

Generally, major changes in enforcement are focused on the following issues: (1) assimilation of passing off patents into counterfeiting patents; (2) raising threshold for penalty; (3) further harmonisation of the Patent Law and Civil Procedural Law and (4) adding state of the art defence.

2.2.1 Assimilation of passing off patents into counterfeiting patents
In the Chinese Patent Law, patent infringements are narrowly interpreted as exploitation of a patent without the authorisation of the owner of the patent, which is paralleled in Patent Law (2000) with another two forms of violation, i.e. counterfeit patents and passing off patents. In the 2000 Patent Law, counterfeit patents refer to the following acts:
(1) Indicating the patent number of another person on the products or their packages without the authorisation of the owner of the patent;
(2) Using the patent number of another person in an advertisement or any other promotion without authorisation, so as to mislead the public to regard the technology concerned as a patented technology of the person without the authorisation of the owner of the patent;
(3) Using the patent number of another person in a contract without authorisation, so as to mislead the public to regard the technology referred to in the contract as a patented technology of the person;
(4) Counterfeiting or transforming a patent certificate, patent document or patent application document of another person.

Passing off patents, on the other hand, refers to acts of passing a non-patented product off as a patented product or passing a non-patented process off as a patented process, including the following:
(1) Manufacturing or selling a non-patented product affixed with a mark of patent;
(2) Continuing the use of a mark of patent on products made or sold after the patent concerned is declared invalid;
(3) Alleging any non-patented technology as patented technology in advertisements or in any other promotional materials;
(4) Stating any non-patented technology as patented technology in a contract;
(5) Counterfeiting or transforming any patent certificate, patent document or patent application document.

In Patent Law (2008), passing off patents is incorporated into counterfeit patents and is no longer present in the Patent Law. The main concern for this incorporation is to include passing off patents as a circumstance subject to criminal penalty since the Chinese Criminal Law only prescribed a criminal penalty for counterfeit patents. As a result, although passing off patents are equally detrimental to a right holder of patent, there is no way for them to seek a criminal remedy for passing off patents due to the loophole of law. With the Criminal Law remaining intact, Patent Law (2008) assimilates passing off patents into counterfeit patents and such change will lead to the previously excluded passing off patents being criminally punishable.

The separation of counterfeiting patents and passing off patents is based on the rationale that in the former case, there is a valid patent while in the latter there is no patent at all but the infringer pretended there is one. Therefore, in a case of counterfeiting patent, there is always a real, certain patent right holder suffering from the violation; however, in a passing off case, the market order and interest of consumers are generally impaired.

In practice, impairment caused by passing off patents is no less than with counterfeiting and may constitute a crime. However, according to one of the basic principles “Nullum crimen sine lege, nuUa Poena sine Lege” in criminal law, only in acts explicitly defined as criminal acts in the law, the offenders shall be convicted and punished in accordance with law; otherwise, they shall not be convicted or punished. Article 216 Chinese Criminal Law stipulates that whoever counterfeits the patent of another shall, if the circumstances are serious, be sentenced to fixed-term imprisonment of not more than three years or criminal detention and shall also or only be fined. Therefore, when Patent Law (2008) comes into force, acts of current passing off patents will also be regarded in the criminal law as counterfeiting patents and criminally punished.

2.2.2 Raise threshold for punishment
Enforcement of Chinese IPR has always been complained about as ineffective. Patent Law (2008) was prepared in parallel with the World Trade Organization dispute with the United States on IP issues. In the meanwhile, more and more domestic industries are established on patented technologies and registered trademarks. Chinese IP right holders also suffer considerable losses from all kinds of IP infringement. Though the WTO panel was finally in favour of China on the issue of “effective enforcement”, China strengthens patent enforcement in Patent Law (2008) as a positive response to the WTO dispute as well as a reaction to internal demands. In general, such reinforcements are reflected in many issues, among which the most important ones are the increase of fines in administrative enforcement and further clarification of damages calculation.

IP enforcement in China included not only the criminal route and civil route, but also the administrative route where competent authorities may enforce IP law ex officio. In other words, administrative authorities are entitled to render penalty to the offender directly without court hearing. In the Patent Law (2008) this function of administrative authorities is reinforced by raising the threshold for a fine.

According to Patent Law (2000), in cases of counterfeiting patents, the offender shall, in addition to bearing his civil liability, make rectification in accordance with an order publicly announced by the administrative authority on patent affairs. The illegal revenues shall be confiscated and a fine of not more than three times the illegal gains shall be imposed. In the absence of illegal gains, a fine of not more than RMB 50,000 (approximately $7,234 US dollars) may be imposed. Where the offence constitutes a crime, the offender shall be investigated for criminal liability. In cases of passing off patents, the offender shall make rectification in accordance with an order publicly announced by the administrative authority on patent affairs. On top of that, a fine of not more than RMB 50,000 Yuan may be imposed.

After revision, Patent Law (2008) incorporated the two circumstances and raised the fine for illegal gains to “not more than four times the illegal gains.” In the absence of illegal gains, the fine will be not more than RMB 200,000 ($29,298 USD).

Meanwhile, Patent Law (2000) is not clear enough on how to calculate damages. It only provides that the amount of compensation for damages caused by patent infringement shall be determined on the basis of losses suffered by the right holder or the profit gained by the infringer. If it is difficult to determine such losses or profits, the damages shall be estimated by referring to reasonable multiples of the amount of the licensing fees. It is not clear what a court will do if the right holder is still under-compensated on the basis of multiple licensing fees.

Fortunately, this loophole is made up by the Judicial Interpretation. Several Provisions of the Supreme People’s Court on Issues Concerning the Application of Laws in the Adjudication of Patent Disputes further clarify methods of calculation and add a provision on statutory damages. The losses suffered by a right holder due to patent infringement may be calculated by the total volume reduction of products sold in the market due to infringement multiplied by the reasonable profit of each patented product.

Where it is difficult to determine the total volume reduction of patented products, the losses suffered by the right holder due to the infringement may be estimated by the total of infringing products sold in the market multiplied by the reasonable profit of each infringing product. The gains of the infringer from the infringement may be calculated according to the total of infringing products sold in the market multiplied by the reasonable profit of each infringing product. If there is no patent licensing fee to be referred to or the licensing fee is obviously unreasonable, the people’s court may, according to factors such as the type of patent right, or the nature and circumstances of the infringement, determine the amount of compensation generally of more than RMB 5,000 ($7.23) and less than RMB 300,000 ($43,943), but not exceeding RMB 500,000 ($73,240) at most.

Though such provisions could solve the practical problems, the Judicial Interpretation has an embossing position in the legal hierarchy. In Patent Law (2008), above practice of statutory damages is confirmed by law and the scope of statutory damages also raised to the scope between RMB 10,000 ($1,465) and RMB 1,000,000 ($14,648).

Ms. Wenting Cheng is a research associate at the Intellectual Property Development Research Center of State Intellectual Property Office (SIPO) of China. She holds an LLM specialising in Intellectual Property from Peking University School of Law.

Disclaimer: This paper cannot be taken to reflect any views of SIPO. Any opinions or mistakes are those of the author.

[Editor’s Note: this paper is the second in a series.]

1. 孙继斌, 丁金凤《遗传资源保护将与专利制度挂钩 专利法修改剑指基因窃取》, available at :http://www.sipo.gov.cn/sipo2008/mtjj/2008/200809/t20080901_416689.html, last retrieved on September 25, 2009. [^]
2. 3.2 Chapter 1 Part II of Guidelines for Examination [^]