The year 2020 saw significant development in Chinese IP practice. An outpouring of new statutes, regulations, and judicial documents – and amendments to these – set the tone for momentous steps forward in China’s IP legal framework. At the legislative level, as exemplified by the fourth amendment to the Patent Law, China updated its legal rules regarding IP protection in a comprehensive and systematic manner, among which the most prominent reform is the gradual establishment of a pharmaceutical patent linkage system. On the judicial side, Chinese courts participated more actively in the resolution of cross-border disputes through procedural mechanisms such as anti-suit injunctions. In the administrative branch, more detailed regulations were promulgated by the State Administration for Market Regulation (SAMR), the competition law enforcement authority, to scrutinise the activities of IP owners under the Anti-Monopoly Law (AML).
This article aims to help an international audience understand what has happened, and is happening, in China’s IP market.
IP Litigation Trends
In 2020, Chinese courts showed their increased willingness to take the initiative in the adjudication of cross-border disputes through effective dispute resolution mechanisms facilitated under the Chinese law. Such a trend was reflected through Chinese courts’ adjudication in 2020 of a very special type of IP dispute, litigation over standard essential patents (SEPs). In practice, the parties disputing over SEP issues are usually involved in parallel proceedings across multiple jurisdictions, introducing tension among the courts.
By definition, SEPs are patents whose implementation is indispensable to any product manufacturer conforming to the standards. As such, the manufacturer and the patent owner will inevitably need to enter a licence agreement. However, parties may have different opinions on whether the SEPs alleged by the owners are truly essential and whether the licensing fee demanded by the SEP owners is fair, reasonable, and non-discriminatory (FRAND), etc. For decades, SEP-related litigation has revolved around these issues. To gain leverage in the licence negotiation, the SEP owners tend to assert their patents against the implementers in multiple jurisdictions. Sometimes, an SEP owner or an implementer may request a court to decide the FRAND licensing fee for the parties. As the requests before courts in different countries may overlap or affect one another, the outcome of the parties’ fight over jurisdictional issues may have significant impact on the overall litigation strategy and tilt the balance of leverage between the parties.
This past year, the practice of private parties experienced in SEP disputes in China has shown that the following mechanisms, to be discussed in this section, are relevant to resolving global disputes.
The term anti-suit injunction is self-explanatory. It is a ruling issued by a court to enjoin a party from pursuing certain litigation activities before another court. Under Chinese law, the anti-suit injunction mechanism is established under the legal framework of behaviour preservation to limit interference in the adjudication of cases and ensure that the judgments of Chinese courts are meaningfully enforced.
In 2020, the unprecedented issuances of anti-suit injunctions in numerous cases by Chinese courts, including the Supreme People’s Court (SPC) itself, has demonstrated the general willingness of China’s judiciary to employ a civil procedural mechanism to preserve the independence and effectiveness of actions before the Chinese courts. Concretely, on 28 August 2020, in Huawei v Conversant, the SPC issued the very first injunction, within 48 hours from Huawei’s application, enjoining Conversant from enforcing a judgment awarded by the Dusseldorf Court on August 27th.
On 23 September 23, 2020, in Xiaomi v InterDigital, the Wuhan Intermediate People’s Court (Wuhan Court) ruled in favour of Xiaomi enjoining InterDigital from pursuing various actions before foreign courts. Specifically, the injunction required InterDigital to withdraw or stay the injunction or the application thereof in its Indian action. It also enjoined Interdigital from requesting and enforcing existing and potential injunctions from any other court across the globe. Most recently, the Wuhan Court issued, on 25 December 2020, 11 days after Samsung filed its application on December 14th, another anti-suit injunction against Ericsson, per Samsung’s request. It is also worth noting that the anti-suit injunction granted for Samsung is the first anti-suit injunction Chinese courts have granted to a foreign party.
Anti-enforcement or anti-suit?
Anti-suit injunction is a broad term with the following meanings.
The aforementioned ruling from the SPC in Huawei v Conversant can more aptly be thought of as an anti-enforcement injunction. Meanwhile, the rulings from the Wuhan Court covered a broader range. In Xiaomi v InterDigital, InterDigital was enjoined from initiating new cases and proceedings, aside from the “enforcement” of a decision which may be rendered by a foreign court. In Samsung v Ericsson, a further step further was taken as the ruling in favour of Samsung also covered a potential anti-anti-suit injunction which might have been applied for by Ericsson.
Protection of the proceeding in China
Disruption from parallel proceedings was the most important factor Chinese courts considered before they issued injunctions. In all three rulings, the Chinese courts held that existing and potential orders from parallel actions would impede the Chinese court’s adjudication of the case and introduce difficulties in enforcing the judgment rendered by the Chinese court.
In Huawei v Conversant, the SPC held that enforcement of the German judgment might force Huawei to either withdraw from the German market or to settle with unfavourable licensing terms to avoid greater loss to its commercial interests. If Huawei were forced into the settlement, the Chinese court would be deprived of the opportunity to have a meaningful review of the dispute, which would essentially make the China action moot. In both Xiaomi v InterDigital and Samsung v Ericsson, the Wuhan Court pointed to concerns regarding conflicting judgments between the China action and the parallel foreign actions and concluded that the preservation of the effectiveness of the China actions mandated the issuance of the rulings for anti-suit injunctions.
Ex parte proceeding
All of the injunctions in the above-mentioned cases were issued through ex parte proceedings. In Huawei v Conversant, as the court decided that the case involved an urgent situation which required that a ruling be made within 48 hours, it did not hear Conversant’s opinion before the issuance of the anti-suit injunction, which is a mechanism facilitated under Article 5 of the Provisions of the Supreme People's Court on Several Issues Concerning the Application of Law in Cases Involving the Review of Act Preservation in Intellectual Property Disputes.
In Xiaomi v InterDigital, as reflected in the ruling for an anti-suit injunction issued by the Wuhan Court, the Wuhan Court tried to subpoena InterDigital, but InterDigital did not appear in the hearing for the injunction. In Samsung v Ericsson, the anti-suit injunction ruling was also made through an ex parte proceeding.
What happened after the anti-suit injunctions?
In SEP-related litigation, those experienced in this field are used to the strategy of gaining leverage through the employment of regional strategies, rather than having a single court to resolve all the disputes between the parties. The above-mentioned disputes also demonstrate this trait. Huawei and Conversant entered into a global settlement after the SPC’s injunction, demonstrating the use of an anti-suit injunction to help balance the power structure between the two parties.
On the other hand, the Wuhan Court’s injunctions were met with fiercer resistance. InterDigital filed, in its Indian action, an application for an anti-suit injunction on 5 October 2020, which the Indian court granted on October 6th and published on October 9th. The Indian order prohibited Xiaomi from enforcing the Wuhan Court’s order.
More drastically, Ericsson requested, in its US action before the District Court for the Eastern District of Texas Marshall Division (Texas Court), a temporary restraining order (TRO) and an anti-interference injunction on December 28th. The Texas Court granted the TRO on the same day and scheduled a hearing for the request for an anti-interference injunction on 7 January 2020. Also, the Texas Court, in its December 28th TRO, ruled that any fine imposed on Ericsson Inc. and all of its corporate parents, subsidiaries and affiliates by the Wuhan Court should be indemnified by Samsung.
Jurisdiction to determine global licensing fee
Determination of global rates is another request often concurrently submitted to multiple courts and one court’s pre-emptive pronouncement of jurisdiction over determination of global licensing fee can significantly affect proceedings in other jurisdictions. In 2020, Chinese courts not only, and for the first time, declared jurisdiction to determine China rates after the English courts locked down their jurisdiction to determine global rates, but in other global SEP disputes also took the lead in declaring jurisdiction over global rates.
Specifically, with the English courts’ having pronounced jurisdiction to determine global rates, on 21 August 2020, the SPC, in ZTE v Conversant, affirmed the jurisdiction of the Shenzhen Intermediate People’s Court (Shenzhen Court) for the determination of China SEP rates. Then, in Oppo v Sharp, the Shenzhen Court ruled, on 16 October 2020, that it had jurisdiction over the determination of global licensing rates, which is the first ruling in China to confirm a Chinese court’s jurisdiction over the determination of a global licensing fee.
In ZTE v Conversant, the reasoning of the SPC in its jurisdiction ruling of 21 August 2020 is rather straightforward. As the case was about Chinese SEPs, a Chinese court naturally had jurisdiction over the dispute and the SPC’s discussion mainly focused on which specific Chinese court(s) may have had jurisdiction over the case. Specifically, the SPC confirmed that the nature of an SEP dispute is a hybrid of patent infringement and contract dispute as an SEP dispute may happen at any of the stages of licence negotiation and patent implementation. The jurisdiction over the dispute can then be established through various connections, such as the place where the contract is executed or enforced, or the place where the patents are implemented.
In Oppo v Sharp, the Shenzhen Court adopted the reasoning of the SPC and established their jurisdiction over the determination of the global licensing fee by examining whether the dispute had a proper connection with China. Moreover, the Shenzhen Court emphasised that since the R&D and manufacture of the products-in-suit took place in China and the place of implementation for the patent-in-suit was within China, China had the closest tie with the dispute and thus the Shenzhen Court had the jurisdiction to decide the global licensing fee for the parties.
Litigation alongside examination of the validity, standard-essentiality, and quality of the SEPs
Patent invalidation proceedings often go hand-in-hand with patent infringement disputes. SEP litigation is no exception. The special relevance here is that the validity of the SEPs is an indicator of the quality of the patent portfolio and should be considered in the determination of the global licensing fee of a patent portfolio. In Huawei v Conversant, the FRAND-compliant royalties determined by the Nanjing Intermediate People’s Court in 2019, which were around 5% of the original offer from Conversant, was based in part on the fact that eight of the 15 declared SEPs were found as invalid in their entireties by the CNIPA, and six of the remaining patents were not standard-essential.
In Oppo v Sharp, the China actions also involved invalidation processes against the declared SEPs. As of December 2020, 11 of the 17 patents against which Oppo filed their invalidity requests have been found invalid. Similarly, Huawei’s 2019 invalidation requests against InterDigital in Huawei v InterDigital ended up invalidating 14 of the 25 InterDigital patents when the parties settled in April 2020.
Nationwide quasi-stare decisis system
On 27 July 2020, the SPC published the Guiding Opinions on Unifying the Application of Law and Strengthening the Research on Similar Cases (Tentative) (Guiding Opinions), which became effective on 31 July 2020, a national-level effort to ensure consistency in judicial practice. The Guiding Opinions signal a clear step forward to ensuring and enhancing the sophistication and consistency of the Chinese adjudication system.
A few points in the Guiding Opinions are noteworthy. First, only guiding cases published by the SPC that are not in conflict with, and have not been replaced by, the most recently updated statutes, administrative regulations, and judicial interpretations have binding effect on the courts’ adjudication. Other similar cases may only be references for adjudication. Second, whether a previous case qualifies as a similar case depends on whether the basic facts, issues in dispute, application of laws, and other aspects of the previous case are similar. Third, the scope and hierarchy for making reference to similar cases are quite specific. Only cases whose decisions have become effective can be considered similar cases. Additionally, Article 4 of the Guiding Opinions defines the general scope of eligible cases and notes that priority should be given to similar cases within the past three years.
In summary, the similar case system will play an increasingly important role in China. Drawing inspiration from the concept of stare decisis but adapted to China’s legal framework, the similar case system will be the subject of many further updates concerning China’s judicial practice.
Trends in China’s IP Policies and Laws
No less eventful has been the development in China’s IP policies and laws. A diverse array of new rules ranging from fresh legislation to changes in administrative regulations all gave momentum to the development of IP practice. Specifically, the Fourth Amendment to the Patent Law introduced further rules for the establishment of a patent linkage system in China. On the one hand, new legislative activities were made to guarantee stronger protection for IP owners. On the other hand, more detailed regulations were promulgated by the SAMR to scrutinise the activities of IP owners under the AML.
Towards a patent linkage system
The patent linkage system in particular has been long in the making in China. As early as 2017, patent linkage was mentioned in Opinions on Deepening the Reform of Review and Approval System to Encourage Innovation in Drugs and Medical Devices and in Notice 55 Policies Related to Encouraging Innovation in Pharmaceuticals and Medical Devices to Protect the Rights and Interests of Innovators (Draft Soliciting Comments) of the China Food and Drug Administration. The concrete framework for China’s patent linkage system has been, for the first time, fully fleshed out through the Fourth Amendment to the Patent Law, which further stipulates the period compensation and early dispute resolution mechanism for pharmaceutical patents. Meanwhile, the drafts rules soliciting comments from the China State Drug Administration, the CNIPA, and the SPC also present important rules for the patent linkage system.
According to the Fourth Amendment to the Patent Law, Article 76 of the Patent Law now provides an early dispute resolution mechanism. The patentee of a new drug may bring a lawsuit to court during, as opposed to only after, the regulatory approval process. More detailed regulation regarding its implementation is drafted and currently soliciting comments through the Measures for Implementing an Early-Stage Resolution Mechanism for Pharmaceutical Disputes (Tentative) (Draft Solicitating Comments).
Article 42 of the amended Patent Law stipulates two forms of patent period compensation. One compensates for the unreasonable delay in the authorisation process, a compensation applicable not only to invention patents for new drugs but also to other invention patents. The other compensates for the time taken for review and approval for marketing new drugs, a compensation applicable only to invention patents of “new” drugs. Compensation in patent period for new drugs protects the interests of the original pharmaceutical company (that invented the drug) and incentivises innovation.
Amendments to the new patent law
Aside from the rules for the patent linkage system mentioned above, the Patent Law, which was passed on 17 October 2020 and will be enforceable from 1 June 2021, also introduces other important changes. First, provisions regarding punitive damages are introduced, and the maximum statutory damages amount is increased. Second, the patent open licensing system was introduced to reduce the transaction costs involved in patent licensing. Third, it was also clarified that abuse of patent rights, which excludes or restricts competition, is to be scrutinised under the AML. Overall, the changes were made to enhance IP protection in China.
The amended Patent Law introduces a punitive damages system for patent infringement cases. In the event of intentional infringement of patent rights, and under serious circumstances, courts may determine the amount of damages within the range of one to five times the amount calculated according to the damage borne by the patentee, the profits gained by the infringer, or a multiple of the patent licensing fee. Meanwhile, the amount of statutory damages has been raised to CNY30,000 (lower limit) and CNY5 million (upper limit).
Another innovative move of the newly amended Patent Law is the establishment of the open patent licensing system. The amended Patent Law stipulates procedural elements regarding:
so as to resolve the issue of information asymmetry between the supply and demand sides of patent technologies through governmental public service.
Article 20 introduces the notions of “good-faith principle” and “abuse of patent rights” and clarifies that abuse of patent rights which excludes or restricts competition is scrutinised under the AML. As will be discussed in the next section, the administrative branch has, in turn, promulgated a series of regulations with more specific rules about the AML scrutiny of SEPs.
Monopoly regulations for IP
The Anti-monopoly Guidelines of the Anti-monopoly Committee of the State Council of Intellectual Property (Anti-Monopoly Guidelines on IP) was published on 18 September 2020. The document demonstrates an overall emphasis on the regulation of monopolistic behaviour arising from IP rights. In the official interpretation of the Anti-Monopoly Guidelines on IP, the Anti-Monopoly Bureau of the SAMR have observed that anti-monopoly and IP protection measures have the common goal of protecting competition and inspiring innovation so as to increase economic efficiency and protect consumer and overall societal interests. Therefore, providing guidance to balance the tension between anti-monopoly efforts and protection of a patentee’s rights was the overarching goal of the Anti-Monopoly Guidelines on IP. The Anti-Monopoly Guidelines on IP place particular emphasis on curbing abuse of market dominance arising from IP practice, while at the same time cautioning that ownership of intellectual property does not by default imply market dominance.
Another effort along the same lines are the Provisions on Prohibiting Abuse of Intellectual Property Rights to Exclude and Restrict Competition, issued by the SAMR on 23 October 2020 to replace the original regulation issued by the predecessor of the SAMR in 2015. Compared with the previous version, the amendments to the decree were adaptive edits reflecting that the SAMR is now the sole anti-monopoly law enforcement authority in China after the institutional reforms of 2018.
Following up on these guidelines, which occupy the intersection between IP and antitrust, the SAMR published the Anti-Monopoly Guidelines on the Platform Economy (Draft Soliciting Comments) on 10 November 2020. While the main focus of this document is on monopolistic business structures and anti-competitive tactics, questions regarding ownership of data, technology and IP are also involved. In particular, it specifies that ownership of intellectual property can be one of the factors establishing market dominance. The document mandates that tech giants ought to tread carefully with respect to ownership and implementation of IP in China.
Overall, the trends in China’s IP policy and laws reflect a continued effort to enhance IP practice in China while discouraging the unfair restriction of competition. All these new developments are evidence that China will continue to make concerted legislative and judicial efforts to help advance its IP practice.
9/F, Office Tower C1
Oriental Plaza, 1 East Chang An Ave
+86 10 8525 5500
+86 10 8525 email@example.com; firstname.lastname@example.org www.hankunlaw.com