Editor's note: For the past four years, China has been involved in the process of considering an update to its patent laws and regulations, the third revision of its original patent law, which was passed in 1984. The now-enacted law will become effective on October 1, 2009. We have been covering the major changes contained in each draft of the latest revision, and now we do the same for the law as approved.

This article was prepared by Charles C. Liu, PhD, JD, Partner, Director of US and Canada Practices, Unitalen Attorneys at Law and Jeanne J. Liu. Unitalen, the largest private IP law firm in China (see website), is a partner of ChinaBio® Accelerator.

In this installment, which is the third and last of the series, Dr. Liu discusses the topics “Patent Misuse and Unfaithful Proceeding,” “Compulsory Licenses,” “Disclosure of Genetic Resources,” “Patent Licensing and Joint Ownership,” “Empowerment of Patent Administration,” and “Designation of Patent Firms to Handle Foreign-Related Matters.”

In Part I (see article), Dr. Liu covered “Novelty and Inventiveness,” “Secrecy Check and Foreign Filing License,” and “Crossover of Invention and Utility Model.” Part II (see article) discussed “Design Patents,” “Limited Exceptions from Infringement,” “Damages and Injunctive Relief,” and “Patent Counterfeiting.”

PATENT MISUSE AND UNFAITHFUL PROCEEDING

Patent misuse and unfaithful proceedings are of great concern, and are addressed in the National IP Strategy Outlines released in June 2008. A few paragraphs were added in the earlier drafts of the revision to tackle these issues that caused so much concern. In the Final Revision, however, the legislature kept silence on this issue, which was also true in the Draft Revision 8/2008.

At this point, the legislature might want to give more emphasis affirmatively on patent enforcement, and thus is rather reluctant to address the issues of patent misuse in the patent law. Patent misuse may be an issue to be addressed more appropriately in the regulations under the Anti-Monopoly Law (enacted August 30, 2007 and effective August 1, 2008).

In the Draft Revision 12/2006, a provision regarding unfaithful accusation is proposed by stating that a patent owner shall be held liable if he knew that his patented art belongs to prior art but nevertheless unfaithfully brought a court or administrative action for infringement against, and caused harm to another party. This provision, however, was not included in the drafts of 2/2008 and 8/2008, and it was not included in the Finalized Revision 12/2008.

On the other hand, the Draft Revision 8/2008 removes a provision proposed initially in the Draft Revision 2/2008, the provision stating that a patent owner shall be held liable if he brought a court or administrative action for infringement against another party without any factual basis or legitimate grounds, but solely with the purpose of harassing or causing harm to the other party, and actually caused harm to the other party. This earlier proposed provision is not included in the Finalized Revision 12/2008. The reason behind the removal of this proposed rule might be that, at this point, it is difficult to practically interpret and thus actually enforce the rule if provided.

Similarly, the Draft Revision 8/2008 removes a paragraph proposed initially in the Draft Revision 2/2008, the paragraph stating that if a patent owner, through his conduct, expression or silence, caused another party who practices the patented invention reasonably believed that the patent owner was not and would not claim the patent rights, but later the patent owner 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 estopped from claiming the rights to get compensation for the period prior to the date of the action or to ask the court or patent administration to stop the other party from practicing the invention. Again, partially because of the lack of sufficient judicial experience, the legislature seems to be reluctant at this point to address this issue directly in the patent law, and thus did not include this paragraph in the Finalized Revision 12/2008.

Nevertheless, it should be pointed out that the law as revised touched the issue of patent misuse. One paragraph, as further described below, is inserted in the law in the provisions for compulsory license intended to restrict the practice of monopolization by patent owners. In the inserted paragraph, though, the regulation is described in rather broad terms.

COMPULSORY LICENSES

The finalized revision keeps most of proposals presented in the drafts with respect to compulsory licenses on invention patents or utility patents. The Finalized Revision 12/2008 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 the issuance of the patent and four years after the filing of application for the patent.

As mentioned above, the finalized revision also provides broadly that, where a patent owner’s conduct of practicing his patented invention is judged by a judicial or administrative authority as monopolistic, a compulsory license may be granted in order to eliminate or reduce the adverse effects caused by such conduct.

To implement China’s commitment under the Doha Declaration on the TRIPS Agreement on Public Health adopted by the WTO Ministerial Conference in 2001, the law as revised added other paragraphs to address the issue of compulsory licenses for important public interest under certain circumstances.

The earlier drafts, such as the Draft Revision 2/2008, stipulate that public health crises caused by pandemic diseases may constitute a special public health concern, and the prevention, treatment and control of the spread of pandemic diseases all fall under the public interest banner. The Finalized Revision 12/2008, however, states more broadly that, for the purpose of public health, compulsory licenses may be granted for manufacturing certain patented medicinal products and exporting such products to those countries or regions that are complying with the international treaties or conventions for which China is a member.

It should be pointed out that in the Draft Revision of Rules 11/2008, it is proposed to define the term “medicinal products” to be any products used for medical purposes, including active pharmaceutical ingredients used to making such products and diagnostic reagents or items necessary for the use of such products.

Where the targeted invention is of semiconductor technologies, the law as revised sets forth the limitation that compulsory licenses can be granted only for the interests of the general public or if the patent owner’s conduct is determined to exclude or restrain competition.

It is also interesting to know that, based on the law as revised, the compulsory licenses, if granted, shall be enforced mainly to meet the needs of domestic markets, except for the compulsory licenses granted under the banner of anti-monopolization and public health.

DISCLOSURE OF GENETIC RESOURCES

Based on the principle of access and benefit sharing of genetic resources under the Convention of Biological Diversity, a special measure to protect local genetic resources is proposed for the first time in the Draft Revision 12/2006, and it remains in the Finalized Revision 12/2008. It is known that certain legal measures for protection of genetic resources have been adopted in countries such as India, Brazil, Sweden, and Denmark. China is also regarded as one of the countries that are rich in genetic resources and related traditional knowledge. Here, it is indicated that the national interests are of a great concern.

The patent law as revised includes a newly added provision that, wherever an invention was accomplished through acquisition and use of a genetic resource and an application is to be filed based on such invention, the applicant shall disclose the direct source and original source of the genetic resource in the specification of the patent application. If somehow the applicant is not able to disclose the original source, he must state the reason for his inability to disclose.

The law as revised further stipulates that no patent shall be granted on an invention if it is found that the acquisition or use of the genetic resource for the accomplishment of the invention is illegal. Detailed requirements for the disclosure of genetic resources are likely to be worked out later in the revision of the Patent Rules and the Examination Guidelines, and other regulations on the protection of genetic resources.

PATENT LICENSING AND JOINT OWNERSHIP

With further advancement of science and technology in China, patent licensing and technology transfer become more common and necessary in certain business activities. The legislature intends to define legal rights and obligations of patent owners in the transactions of patent licensing.

The law as revised inserts a provision that joint owners of a patent application or an issued patent may enter into an agreement to define their respective rights and obligations and shall be legally bound under the terms of the agreement.

If no such agreement has been entered, each joint owner, for his own benefit, may practice the invented art without consent of the other joint owners, and further, each joint owner may unilaterally grant a “regular” type license to a third party without consent of the other joint owners, but he shall share with all other joint owners any royalties obtained from the license. Otherwise, to have an exclusive license for example, the joint owner has to obtain consent from all other joint owners.

EMPOWERMENT OF PATENT ADMINISTRATION

In China, there is a dual system, through judicial and administrative branches, for legal enforcement against patent infringement and other patent related violations. The effectiveness of patent enforcement has often been one of the most serious concerns for patent owners from either domestic or overseas competitors. For an effective enforcement system, the government intents to allocate appropriate powers between the courts and the patent administrations.

In a newly added paragraph of the law, the legislature further empowers the patent administrations in handling cases of patent counterfeiting. The renumbered power includes that of examining the alleged infringer and other related parties, of conducting investigation on the conduct related to the alleged infringement, of inspecting the premises of the alleged infringing activities, of inspecting or making copies of relevant documents, of inspecting the products related to the infringement, and of seizing or confiscating relevant products if the products have been evidentially proved as of counterfeiting.

It is should be mentioned that, in the Draft Revision 12/2006, the type of power listed above was proposed originally to the patent administration for handling cases of patent infringement and patent counterfeiting. In the later drafts of 2/2008 and 8/2008, however, this proposal for administrative empowerment is entirely removed from the proposals. The definition of the empowerment for patent counterfeiting matters in the finalized law revision indicates that the legislature intends to keep an appropriate balance on the allocation of the power between the courts and the administrations under the general guideline provided in the National IP Strategy Outlines released earlier in 2008.

DESIGNATION OF PATENT FIRMS TO HANDLE FOREIGN-RELATED MATTERS

The current Chinese Patent Law, since its enactment in 1984, includes a special provision empowering the state patent administration to designate certain patent agencies to handle foreign-related maters for patent prosecution. Under such provision, any domestic Chinese applicant who intends to file patent applications abroad or any foreign applicant who intends to file patent applications in China has to entrust a Chinese patent agency that is designated by the state patent administration.

Through more than twenty years of practice, it is quite clear that such requirement of governmental designation as defined in the patent law becomes obsolete and unfair. The removal of this requirement is proposed in the drafts and is adopted in the Finalized Revision 12/2008.

After the removal of such requirement, foreign applicants may entrust any of the legally formed patent agencies 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 to work with a foreign law firm, or even directly entrust a foreign patent firm, to file their patent applications in a foreign country.

CONCLUSION

The process of the third revision of the Chinese Patent Law, after about three years of the effort of the administration and legislature of the Chinese patent regime, comes to its conclusion at the end of 2008. The law will become effective on October 1, 2009. Like the prior revisions, this third revision is just one of the continuous waves of the effort intended to make this country’s patent system more adequate, fair and effective.

Disclosure: none.