2 February 2021
.jpg)
Introduction
Due to the relative complexity of patent infringement compared with trade mark and copyright infringement, most countries in the world resolve patent disputes through their judicial systems. But in China, in parallel with judicial protection, administrative enforcement authorities also play an important role in resolving patent disputes.
China has three types of patents: design patents, invention patents and utility models. Administrative enforcement authorities in China can handle cases relating to all three types of patents across all industries. In practice, there are more administrative design patent disputes than utility model or invention patent disputes because design patents are technically simpler and, therefore, more suitable for a quick and fast resolution through the administrative enforcement system. There are, however, still a substantial number of utility model and invention patent cases.
Administrative authorities in China
Since April 2018, the State Administration for Market Regulation (SAMR) has been responsible for the administrative enforcement of patents, in addition to trade marks and unfair competition. Patent administrative enforcement was previously carried out by the State Intellectual Property Office (SIPO), now renamed as the China National Intellectual Property Administration (CNIPA). As part of a government restructure the CNIPA was changed from being an affiliate of the State Counsel to being an affiliate of the newly created SAMR. The State Adminstration of Industry and Commerce (SAIC) which dealt with trade marks and unfair competition also became part of the SAMR. We will use the term AMR to refer to the Administration for Market Regulation as the enforcement authority for patents in this article.
Remedies in administrative enforcement
The AMRs have very broad powers for trade mark and unfair competition enforcement. They can inspect (commonly referred to as “raiding”) premises and seize or seal suspected infringing products and tooling. If they find infringement, they can also impose fines. However, under the Patent Law the AMR has no authority to seize or seal any products or tooling and cannot impose fines. The AMR only has the power to inspect the premises of a suspected infringer and take notes or preserve records of infringing items. If patent infringement is established, the AMR can issue an Administrative Decision ordering the immediate cessation of infringement.
AMR officials worry that they are less powerful in patent enforcement and have joked about being “a toothless tiger”. Without the authority to seize and impose fines, infringers are sometimes uncooperative and its deterrent effect can be more limited. Some lower-level AMRs have made suggestions to the SAMR to add these two important powers into the new patent law. However, the newly amended PRC Patent Law effective on 1 June 2021 did not add such powers.
Pros and Cons of Administrative Patent Enforcement
Nonetheless, there are many advantages for patent owners to bring a patent dispute to the AMRs. Costs are much lower than that of civil litigation which makes it attractive for smaller disputes. In addition, by inspecting the premises, the AMR can obtain direct evidence of infringement and their procedures allow for the fast resolution of design and utility patent disputes, often within a few months. They will also seek to mediate a case, offering both parties the chance to settle the dispute without escalating it to litigation, therefore saving time, money and judicial resources.
Certain types of simple invention patents, especially mechanical patents, are commonly infringed in China due to its manufacturing volume. These types of patents are also suitable for administrative enforcement. It is generally very difficult to obtain evidence of patent infringement against a manufacturer, so an inspection by the AMR is a very good way to secure such evidence. Even if there is no resolution, patent owners can use the collected evidence in future civil litigation to prove acts of infringement and claim damages.
AMRs are able to reach a faster resolution for straightforward design and utility patent disputes by relying on patent evaluation reports. There is no substantive examination for utility model patents and design patents in China and their validity is often challenged. The patent evaluation report is a reference report that is issued by the CNIPA upon application of the patentee or a third party to evaluate the validity of a utility model patent or a design patent. The evaluation process is similar to that for substantive examination of invention patents. Evaluation reports are especially useful for handling disputes over infringements on e-commerce platforms and at exhibitions.
With the advantages of administrative enforcement, the number of administrative patent disputes cases is on the increase. According to the CNIPA’s 2019 white paper on the Intellectual Property Protection Status in China, the administrative enforcement authority decided 39,000 patent infringement cases in 2019, a 13.7% increase over that of 2018. With the increase of cases, the officials of all levels of the AMR are becoming more experienced at resolving patent disputes, which in turn encourages IP right owners to seek administrative remedies more frequently.
Newer remedies trialed in Shenzhen
What is also worth mentioning is Shenzhen’s aggressive legislative efforts in authorizing the Shenzhen AMR to issue preliminary injunctions. Shenzhen is a Special Economic Zone and is used to trial novel and new IP remedies. Under Article 26 of the Shenzhen Special Economic Zone IP Protection Regulation effective on 1 March 2019, if there is evidence to prove the existence of IP infringement, the AMR can issue a preliminary injunction ordering the alleged infringer to immediately stop infringing activities. The AMR will then go through its investigative procedures and then decide the case. Before issuing a preliminary injunction, the Shenzhen AMR may request the IP right owner or interested parties to provide a reasonable bond. If infringement cannot be established after investigation, the AMR will discharge the injunction. In our communication with Shenzhen AMR enforcement officials they have told us that, so far, they have not issued any preliminary injunctions yet. Given it is rare even for courts to grant preliminary injunctions, officials will be cautious in granting preliminary injunctions. However, at some point an IP owner will try and obtain this pioneering remedy in Shenzhen.
Case examples
The CNIPA and its subsidiary provincial and city-level IPAs respectively publish annual top 10 patent administrative cases to exemplify the achievements of patent administrative protection. The following cases are some examples of IP right owners’ complaints to AMRs (or IPAs).
In June 2019, Bridgestone filed a complaint to the Tianjin city IPA against a local tire manufacturer for producing, selling and offering for sale WS1002 tires that infringed Bridgestone’s invention patent No. ZL201280046691.8 for a pneumatic tire. The IPA reviewed the case and arguments provided by both sides, compared the defendant’s product with the patent and concluded that the target tire fell within the protection scope of the patent. Before issuing an administrative decision, the IPA hosted negotiation meetings between both parties and patiently mediated a settlement. The defendant finally agreed to stop infringement and pay damages of RMB 300,000 (US$ 46,153) to Bridgestone.
In 2018 and 2019 Bayer was also supported in 3 cases by the Beijing and Shanghai IPAs in its medicine patents disputes with Chinese medical companies through administrative decisions and settlements.
In March 2019, the owner of design patent No. ZL201430187159.X for “chain ecological slope protection bricks” filed a complaint to Xianyang city IPA in Shanxi province against two local manufacturers for producing and selling bricks copying their patent protected design. The IPA inspected the defendants’ premises and recorded evidence. In IPA mediation, the two defendants refused to pay any damages and settlement could not be reached. The IPA issued an administrative decision ruling infringement. The plaintiff then filed damages claims in litigation against the two defendants with evidence established by the IPA decision to Xi’an City Intermediary Court. The court sustained the evidence and awarded altogether RMB 128,185.70 (approx.US$19,720) damages to the plaintiff.
With the boom in e-commerce in China, AMRs have tried to adopt more efficient measures for resolving patent disputes online. In May 2019, a company owning the utility patent No. ZL20152078058.9 filed a complaint to the Wenzhou city IPA in Zhejiang province against an individual who sold automobile mats infringing its patent. The IPA issued an administrative decision in October 2019 requesting the individual to stop selling infringing mats and offer-for-sale immediately. To make sure the infringer complied with the decision quickly, the IPA monitored and supervised the infringer to self-check the infringing links on the e-commerce platforms and to delete over 100 infringing items.
Customs patent protection
Another administrative enforcement authority that can handle patent infringement cases is China Customs. It has the power to intercept and detain shipments that are suspected of patent infringement based on patent owner’s recordal of its patents in the customs system. Because China Customs has no expertise to be in a position to decide on patent infringement, the China Customs IP Protection Regulation stipulates that the patent owner has 20 working days to file the case in a competent court, otherwise, the Customs will release the goods detained.
According to the CNIPA’s 2019 white paper on China Intellectual Property Protection Status in China, a total of 114 shipments with 209,400 items of products suspected of patent infringement were detained in 2019 by the China Customs.
Filing a lawsuit over a customs detention is likely to involve exporters rather than the producer, so it can be used as a useful tactical tool. It harms both their export channels as well as, of course, their overseas customers will not receive the shipment and may well have paid for the goods. Such actions will normally require the actual infringer to join and defend. If the case is not well defended, it may be a cheap and easy case to win.
In 2018, a US invention patent owner of a mobile phone case filed for civil litigation in the Shenzhen Intermediate People’s Court after obtaining evidence through a successful customs detention and an AMR factory raid. The case started with delivery documentation obtained from US customs relating to a detained shipment of infringing products imported into the US from a trading company in Shenzhen. Investigations led to a factory in neighboring Dongguan city, and a complaint to the Dongguan AMR for patent infringement and a customs recordal notice was filed. A container truck loaded with target products worth US$90,000 was successfully intercepted at Yantian port in Shenzhen by China Customs. At the same time, the Dongguan AMR inspected the factory and found over 1000 infringing items in the workshops and secured records. This led to successful civil action against both the trading company in Shenzhen and the Dongguan factory in Shenzhen’s Intermediate People’s Court.
Warning letters
The effectiveness of warning letters in patent disputes can be limited in China. But with administrative decisions from the AMR, the deterrent effect can be increased by mentioning a decision in a warning letter against infringers. In many cases therefore a low cost administrative case can be a precedent for a warning letter campaign against other infringers in the market.
With the introduction of punitive damages in the new PRC Patent Law due to come into force in June 2021, warning letters which include mention an administrative decision will become even more effective. Article 71 of the new Patent Law states that for intentional patent infringements, if the infringement is serious, punitive damages of one to five times the actual loss, illegal profit, or licensing fee can be awarded to the plaintiff. A common defense relied on by the infringer is that they did not knowingly infringe. With the subjective factor of intention taken into account for damages evaluation, patent owners may consider sending warning letters before complaining to AMR or going to court. If the infringer refuses to settle after receiving the letter, they will lose the “ unintentional defense” and face punitive damages if they continue to infringe. This gives patent owners potentially very good leverage in getting the infringer to settle at the administrative stage.
Conclusion
China’s administrative enforcement system can be used in design and other patent cases to powerful effect. They are not widely understood, or their impact is regarded as insufficient. However with careful planning, they can have a strong impact at lower costs make them good value for money. For designs they are an ideal solution, when the scale of infringement may not justify bringing a court case. The ability to combine administrative enforcement with other solutions such as Customs seizures and to follow on litigation make them useful in more complex cases as well.
Sophia Hou Principal, General Branch Office Manager, Rouse
shou@lushenglawyers.com
