近日，磐华创始人董巍律师、刘勇先生发表了关于《中国专利许可与诉讼：洞悉最新发展与未来趋势》(Patent Litigation: China)一文，该文章基于在中国领先的独立第三方专利许可实践，就中国目前的许可与诉讼发展趋势进行了带有前瞻性的探讨。

以下是文章正文：

Patent Litigation: China

Introduction

i Active non-practising entities, anxious tech giants

Non-practising entities (i.e., persons or companies that acquire a patent or patent rights but do not practise the patented invention - NPEs) are becoming more proactive in China. 

Last year, what is notable is the local NPEs began to emerge in China. A Chinese company, Beijing IP Finding Intellectual Property Management Co., Ltd. (IP Finding), obtained at least 17 non-SEP patents from Huawei Technologies Co., Ltd. (Huawei) and has already taken several legal actions. On 30 April 2024, according to the official website of IP Finding, IP Finding won first victory in patent invalidation for its Network And Telecommunication Patent Portfolios.¹

In this newsletter, IP Finding also mentioned multiple patent disputes. According to the currently available public information, the validity of its three patents has been upheld by the China National Intellectual Property Administration (CNIPA), while nine patents are facing invalidation challenges. These developments highlight the high quality of IP Finding's patent portfolios. Moreover, these activities may be indicative of IP Finding's proactive strategy. Despite being a newcomer,  IP Finding may have taken active measures against both domestic and foreign implementers.

IP Finding also actively engage in cooperation with other major Chinese patent holders on patent monetisation. On 3 September 2023, a patent operation press conference & signing ceremony officially held by Patent Protection Association of China (PPAC). During the conference, three high-tech giants, namely the Institute of Microelectronics (IME) of the Chinese Academy of Science (CAS), China Mobile Communications Group Co., Ltd. (CMCC) and Huawei, signed memoranda of cooperation on patent operation respectively with IP Finding and another company.²

The emergence of local NPEs like IP Finding is not a chance event. According to the World Intellectual Property Organization's report World Intellectual Property Indicators 2023,³ in 2022, the highest number of patents in force was in China (4.2 million) - accounting for approximately a quarter of the world total. Chinese entities such as enterprises, universities and research institutions have accumulated a large number of patents and are looking to monetise their patents through assignments, licensing, etc. As a result of this trend, the emergence of local NPEs like IP Finding is a natural development. Moreover, given the large number of non-SEP patents in China, it is a very standard strategy for local NPEs like IP Finding to prioritize the monetisation of non-SEP patents.

Local NPEs like IP Finding have a deeper understanding of China's technological, legal, economic and cultural attributes than international NPEs. As a result, Local NPEs are able to build a more diversified patent transaction market in China. Additionally, for foreign companies whose products have been withdrawn from the Chinese market, they could sell their Chinese patents to local NPEs, thereby continuing to earn sustainable revenue in China.

The activities of international NPEs in China are equally deserving of attention. Quite a few well-known domestic and foreign companies have already encountered patent infringement lawsuits initiated by international NPEs in China. Some international NPEs launched a series of patent infringement lawsuits over a short period in multiple jurisdictions, including China, to put pressure on those companies. For example, a famous Japanese telecommunications company faced a series of patent litigation actions initiated by an international NPE in China, and the Japanese company's main products were threatened with injunctions.⁴

Therefore, companies must carefully consider how to deal with the different kinds of NPEs and weigh up the related potential risks in China.

ii Domestic and foreign entities treated equally

The Chinese Patent Law of 2020 introduced a new system of measures entitled the Administrative Adjudication of Major Patent Infringement Disputes. The first beneficiary of the new system was Boehringer Ingelheim Pharma GmbH & Co KG, a German patentee. In that case, the CNIPA upheld the request of Boehringer Ingelheim Pharma GmbH & Co KG, and determined that the respondents, two Chinese companies from Guangdong and Hubei provinces respectively, had infringed patents of the German company, and it ordered the respondents to cease their infringing activities.

Last year, a leading Japanese manufacturer of mother and baby products won a first instance lawsuit in a Chinese court, which awarded damages of 16.1 million yuan.⁵

Recently, a notable global base station antenna (BSA) manufacturer won the first trial of a patent infringement action at Jiangsu High Court and the plaintiffs’ damages claim for RMB 100 million has been dismissed.⁶ 

The above cases all indicate that domestic and foreign entities - encompassing not just patent holders but also those who implement the patents - are treated equally in China.

In fact, China continues to welcome foreign companies to invest in the country, without any favouritism towards domestic companies. Last year, the State Council of China issued the Opinions on Further Optimising the Foreign Investment Environment and Increasing Foreign Investment (the Opinions), covering areas such as fair competition, tax incentives, cross-border data transmission, and research and development support. The Opinions contain 24 specific measures and signal China's commitment to further opening up the country to investment.

iii More patent litigation, higher damages

In 2023, Chinese local courts at all levels accepted a total of 44,711 new civil patent cases of first instance, an increase of 14.73 per cent over the previous year. There were 1,990 newly accepted administrative patent cases of first instance, representing an increase of 5.85 per cent over the previous year.

A major reason for the increasing volume of patent litigation is that the  Chinese Patent Law of 2020 increased penalties for infringement, most notably by:

a. reducing the burden of proof on the patentees regarding the damages; namely where the right holder has made best efforts to adduce evidence but the account books and materials relating to the infringement are mainly in the possession of the infringer, the court may order the infringer to provide the account books and materials in order to determine the damages;

b. increasing the amount of statutory damages from between 10,000 yuan and 1 million yuan to between 30,000 yuan and 5 million yuan;

c. introducing a system of punitive damages, whereby in the event of an intentional patent infringement under serious circumstances, the courts may award punitive damages of one to five times the amount of actual damages.

According to the 2022 Chinese Patent Survey Report, in 2021 and 2022, the number of patent infringement cases in China with compensation awarded by courts, and mediated by court or settled out of court, with a value in excess of 5 million yuan reached 7.6 per cent and 7 per cent, respectively - a doubling of the figures seen in previous years.⁷ This doubling is indicative of the increasingly high levels of compensation (i.e., in excess of 5 million yuan) available in patent infringement cases in China. For example, in 2022, the settlement amount in a highly publicised patent infringement case regarding central processing unit chips was around 200 million yuan.

Punitive damages have provided an effective deterrent against infringers and afford better protection for the interests of patentees.

The patent system in China is steadily improving, with more stringent penalties for patent infringement. The volume of patent litigation is on the rise and the judges are becoming more and more proficient in handling patent disputes. These trends are all indicative of the continuous efforts China is making to better protect the interests of both domestic and foreign patentees.

Year in review

First, on 28 November 2023, the Chongqing First Intermediate People's Court (Chongqing Court) established a set of global FRAND royalty rates for SEP  licensing for cellular handsets in OPPO Guangdong Mobile Communications Co., Ltd. (Oppo) vs Nokia Corporation (Nokia).⁸ This is the first time that a Chinese court has issued a decision on global royalty rates for SEPs. Regarding the 5G multi-mode mobile phone, Oppo should pay Nokia a licensing fee of USD 1.151 per unit in countries and regions with per capita GDP above USD 20,000, and USD 0.707 per unit in Mainland China and other countries and regions. Regarding the 4G multi-mode mobile phone, Oppo should pay Nokia a licensing fee of USD 0.777 per unit in countries and regions with per capita GDP above USD 20,000, and USD 0.477 per unit in Mainland China and other countries and regions. Moreover, the Chongqing Court determined: 1) the value contribution ratio of 5G, 4G, 3G, and 2G technologies in a 5G phone should be 50:40:5:5; and 2) the global aggregate royalty rate of the 5G standard in the mobile phone industry should be between 4.341% and 5.273%, which is the world’s first determination of an aggregate royalty rate for the 5G standard.

Second, on 21 December 2023, the finalised version of the revised Rules for the Implementation of the Patent Law (the Rules) and the Guidelines for Patent Examination (the Guidelines) were issued and came into force on 20 January 2024. The revised versions of them now better meet practical requirements and improve Chinese patent system. For example, notifications served electronically by the CNIPA are deemed to be served on the date they enter into the electronic system. That is, for notifications received through electronic system, the previous 15-day delay in calculating deadlines is eliminated. This change will expedite the invalidity proceedings.

Last, ongoing NPE activities in China are particularly noteworthy. According to a written civil ruling published in 2022, iPEL, a world-renowned NPE, Global Innovation Aggregators LLC, an iPEL subsidiary, and its Chinese affiliates were sued by Netgear (Beijing) Network Technology Co, Ltd for 'malicious filing of IP litigation damage liability disputes', but the case was terminated after the plaintiff withdrew the case.⁹ In addition, there was an increasing number of lawsuits filed by local NPEs against defendants that include giant foreign-invested companies, and many of these trials are currently under way.

Types of patent

The Chinese Patent provides for three types of patent: invention, utility model and design. Applications for all three types of patent are accepted and examined by the CNIPA.

i Invention

The subject of invention patents includes both products and methods. Invention patents have to undergo a substantive examination procedure and, therefore, are more stable than utility model patents.

Generally, invention patents are valid for a period of 20 years from the filing date. According to the provisions of the Rules, if an invention patent is granted four years or more after the filing date and 3 years or more after the request for substantive examination, patentee could request patent term adjustment (PTA) within three months from the date of the announcement of the grant of the patent right.

Moreover, patent term extension (PTE) is available for new drug-related invention patents, namely, patents for new drug products, patents for preparation methods, and patents for medical use. Patentee shall request for PTE within three months from the date on which the new drug obtains marketing approval in China. The PTE may not exceed five years, and the total effective term of the patent after the new drug is approved for marketing shall not exceed 14 years.

It should be noted that there are many other detailed provisions on PTA and PTE in the Rules and the Guidelines. For example, PTA is not applicable to the invention patent via a dual-filing strategy.

ii Utility model

The term of a utility model patent is 10 years, counted from the filing date. The subject of utility model patents is limited to products, and excludes methods. The requirements of novelty and inventiveness are lower for a utility model patent than for an invention patent. Although there is no substantive examination, a preliminary examination is required for a utility model patent.

Notably, the Guidelines introduces for utility model patents the examination for obvious lack of inventiveness. The goal of this change is to optimise the examination standards and the quality of granted utility model patents in China.

iii Design

The Chinese Patent Law of 2020 increased the design patent term from 10 to 15 years. This amendment enables China to accede to the Hague Agreement, which requires a 15-year term for designs. The Hague Agreement entered into force in China on 5 May 2022. In addition, the Chinese Patent Law of 2020 provided protection for partial designs and established a domestic priority system for design patent applications.

Procedure in patent enforcement and invalidity actions

i Jurisdiction

An invalidity request is examined by the CNIPA's Patent Re-examination and Invalidation Board. The subsequent administrative litigation is examined exclusively by Beijing Intellectual Property Court in the first instance.

The jurisdiction of patent infringement litigation in China is determined by factors such as the type of patent and the monetary value involved in the case. This subsection provides a brief overview of the general circumstances:

There are four courts specialising in the handling of intellectual property disputes in China: Beijing Intellectual Property Court, Shanghai Intellectual Property Court, Guangzhou Intellectual Property Court and Hainan Free Trade Port Intellectual Property Court. Beijing Intellectual Property Court and Shanghai Intellectual Property Court are in charge of the cases within the administrative areas of Beijing and Shanghai respectively. Guangzhou Intellectual Property Court is responsible for cases within Guangdong province, excluding Shenzhen, while Hainan Free Trade Port Intellectual Property Court has jurisdiction over cases within the Hainan Province.

Furthermore, there are 27 specialised Intellectual Property Tribunals affiliated to the intermediate courts. For example, the Intellectual Property Tribunal of Nanjing Intermediate Court has jurisdiction over the infringement litigation relating to invention and utility model patents within the administrative areas of Nanjing, Zhenjiang, Yangzhou, Taizhou, Huai'an and Yancheng, and so its jurisdictionis broader than that of Nanjing Intermediate Court, which is limited to cases within Nanjing.

ii Burden of proof

In accordance with the principle that the burden of proof lies with the party that raises the claim, the patent owner would ordinarily bear the burden of proving a claim of patent infringement in a lawsuit. Therefore, the plaintiff must prove the existence of infringing activities and that the defendant's products fall within the scope of protection of its patent.

There is a trend to reduce the plaintiff's burden to some extent. For example, where any dispute over patent infringement involves a patent for invention for the manufacturing process of a new product, an entity or individual manufacturing an identical product must provide proof of the difference between its own process used in the manufacture of its product and the patented process.

iii Amendment of claims

A patentee has no right to amend claims during the infringement litigation process.

There are strict limitations on amending claims in invalidity procedures. For example, two dependent claims may not be combined with an independent claim that was originally cited to form two new independent claims.

iv Defence period

A defendant whose identity is established in China has 15 days and defendants whose identity is established elsewhere have 30 days from the date a complaint is received by a court to file written defences or objections against jurisdiction or an invalidation request.

An objection against jurisdiction will cause the suspension of an examination. The procedure will not continue until courts of the first and second instance issue rulings, which takes several months. This procedure is sometimes used by defendants to delay the process.

Technically speaking, only invalidation requests filed within the written defence period are regarded as eligible grounds for suspending examination. However, a court may determine whether to suspend the examination depending on the specific situation. It is rare for a court to suspend examination of an invention patent case, unless there is a high likelihood that the invention will be invalidated. Nonetheless, in practice, courts will normally wait for the first-round invalidation decision to be issued before making a judgment.

v Hearing and judgment

In the majority of cases there is only one court hearing, which includes cross-examination of evidence, the court investigation, and debate.

The duration of the examination varies greatly, depending on the specific case and the specific court. Generally speaking, if the contesting parties are both of Chinese identity, the examination will be faster than if a foreign identity were involved. The first instance examination can be concluded within one year, but busy courts take longer (such as the four specialised intellectual property courts).

Invalidation proceedings are relatively fast, compared with the lengthy duration of infringement case examinations, and can be concluded within nine months.

A preliminary injunction can be granted at the pre-litigation or mid-litigation stages at the request of a patentee.

If a preliminary injunction is granted at the pre-litigation stage, the patentee must file litigation within 30 days of the injunction being implemented, otherwise the injunction will be dismissed.

A party subject to an injunction order may file an appeal within five days of receiving the order. The appeal involves a review filed with the court that issued the injunction order, not an upper-level court. The court must issue its decision within 10 days of a review being filed.

Substantive law

In China, judicial interpretations issued by the judges of Supreme People's Court have the same legal effect as legislation. Legislation only gives general guidelines and judicial interpretations specify how the law is used to examine cases.

Moreover, close to World Intellectual Property Day, the Supreme People's Court also publishes its Annual Outstanding Cases which select and summarise legal points with pertinence for judicial practices. These do not have the binding effect of judicial interpretations, but each court seriously considers them when determining similar issues. Courts' opinions, summarised from specific outstanding cases, are great contributions to the drafting of judicial interpretations. For example, in 2012, the Supreme People's Court coined the term 'usage environment features' in a retrial case to resolve the lack of the concept of indirect infringement. This case was included in the Annual Outstanding Cases and written into judicial interpretations in 2016.

i Infringement

The Chinese Patent Law provides five types of infringing activities: manufacturing, importation, use, sale and offering for sale.

There is no concept of 'indirect infringement' in China's legal system. To resolve this, the concepts of 'usage environment features' and 'contributory infringement' were introduced. Where a certain feature is missing from the accused product, such as in the Supreme People's Court outstanding case in which a rear bicycle derailleur provided by a component factory did not include the bicycle frame to which it would later be attached during assembly of the bicycle by the bicycle factory, the infringement would not be established as, in that particular case, the claim consisted in the feature of the bicycle frame that defined the connection position and relationship to the rear derailleur. However, if the concept of usage environment were applied, as long as the rear derailleur could be used with the bicycle frame, the feature would not be considered missing and, therefore, the infringement would be established.¹⁰ This concept is now widely used in legal practice and in the communications field, where the feature of an end user is normally defined but is absent from accused products.

As for contributory infringement, if an accessories provider clearly knows that the generic accessories are to be used with an infringing product, or the accessories are not generic but are customised for use with the infringing product, the provider shall be considered a contributory infringer.

ii Invalidity and other defences

The invalidity procedure is examined separately by the CNIPA. The court normally does not suspend the examination to wait for the result of invalidity challenge. Despite that an invalidation decision will not come into effect until after the two rounds of administrative litigation (if any party files litigation), once the invalidation decision declares a patent partially or wholly invalid, corresponding civil litigation asserting invalid claims will be rejected by the courts. The patentee will retain the right to file civil litigation again if the invalidation decision is overturned by the effective administrative judgment.

As regards the prior art defence in China, the established practice is to compare the accused product with the asserted prior art. An accused product that falls into the protective scope of the prior art is not consider to be an infringement, without further comparisons being made with the disputed patent.

Final remedies for infringement

Permanent injunctions and monetary awards are common final remedies ordered by courts.

According to the judicial interpretations, the following formula is used for calculating damages:

profit rate x unit price x quantity of the sold accused products x contribution rate of the patent = damages

This formula is normally applied to cases involving sales that mainly occur on e-commerce platforms or sales by public listed companies, where unit prices and sales amounts are comparatively transparent. Disputes usually concern the profit rate and contribution rate of the patent.

As financial information for offline businesses and non-public listed companies are secret, the majority of the cases involving these entities use statutory damages. In the past, the low money awards from statutory damages was a major shortcoming of patent litigation in China, as damages incurred usually exceeded the ceiling for statutory damages.

Huawei v. Samsung, which was heard at Fujian High Court in December 2017, is considered to be the point when higher damages in patent litigation began to be awarded. In a first instance judgment, Fujian High Court awarded 80 million yuan to Huawei. The judge held that Samsung's profit from its infringing activities was much higher than the damages claimed by Huawei and, therefore, Huawei's claim should be fully supported. Where a court uses this approach, it is not necessary for it to accurately calculate the profits gained by the infringer; if a rough calculation can show that damages claimed by a plaintiff are much less than the infringer's profit, the plaintiff's claim for damages will be fully supported.

The Chinese Patent Law of 2020 increased the range of statutory damages to between 30,000 yuan and 5 million yuan, and stipulated that claimed damages should be multiplied by up to five times in the event of infringement in bad faith.

Following the improvements in legislation and court practices, the increased price of infringing is expected to lead to patents being truly respected.

Other types of patent proceeding

China has a well-known dual-track protection scheme. In addition to court proceedings, patentees can also file administrative complaints with local intellectual property offices.

Compared with court proceedings, administrative complaints have a much quicker examination speed - normally cases are closed within six months. While administrative decisions can be appealed, the appeal rate is low.

An administrative complaint does not result in damages being paid to patentees or fines being imposed on infringers. But it is suitable for patentees seeking quick injunctions but no monetary demands.

The administrative complaint also provides patentees with the means to a better settlement with an infringer than a negotiation based on cease-and-desist letter, since the local authority will put pressure on the alleged infringer, as local intellectual property offices normally encourage and welcome settlements.

Appeal

The due period for filing an appeal is 15 days (for those of Chinese identity) and 30 days (for those of foreign identity) from the receiving date of the first instance judgment. New evidence is not normally accepted in second instance hearings, unless there is a justified reason to explain why the evidence was not submitted in the first instance hearing. The second instance court may also consider accepting the new evidence if it is crucial for the case, but the party that submits new evidence may be penalised with a fine.

Since 1 January 2019, the Supreme People's Court has examined second instance patent infringement and patent administrative cases, with the CNIPA as the defendant.

The aim of changes in jurisdiction was to enhance expertise in patent examination and create unified standards, in particular within the Supreme Court, which examines second instance cases from across the nation.

The Supreme People's Court retains jurisdiction for retrials of patent cases after first and second instance examinations are complete. The tribunal for such retrials is independent of the Intellectual Property Tribunal.

Outlook and conclusions

i NPEs, the double-edged sword

With its vast market, continuously improving patent system and stable social environment, not only is China attracting international NPEs, it is also seeing the creation of local NPEs. This development will position China as one of the most dynamic regions for NPE activity worldwide.

The presence of NPEs has sparked intense discussions in China and has been considered a double-edged sword: on one hand, NPEs can facilitate patent monetisation, promote the adoption and implementation of innovations and reduce the transaction costs of patent licensing; on the other hand, some NPEs have the potential to become patent trolls, disrupting the market with frivolous lawsuits and, ultimately, curbing innovation.

The Chinese Patent Law of 2020 introduced 'the principle of good faith' which requires patentees not to damage the public interest or the lawful rights and interests of any other entity by abusing their patent rights. This principle could to a certain extent constrain bad behaviour of NPEs.

There are additional restrictions in the Provisions on Prohibiting the Abuse of Intellectual Property Rights to Exclude or Restrict Competition, issued on 1 April 2023 by the State Administration for Market Regulation, aimed at NPEs that aggregate patents from multiple right holders to form a patent pool. The Provisions include 'shall not license a patent in the pool at an unfairly high price' and eight other similar requirements.

The activity of NPEs has impacted on domestic and foreign companies in China and the rise in lawsuits brought by these entities means it will be worthwhile to monitor whether a set of formal regulations will be introduced into the Chinese patent legal system to temper the unwelcome aspects of the NPEs' currently double-edged sword.

ii Connected vehicles, the next hotpot in patent litigation?

On 27 June 2024, China’s State Administration for Market Regulation (SAMR) formally announced that the head of the Anti-Monopoly Division met with Avanci leadership and delivered the 'Reminder and Urging Letter' in person. According to the official announcement, Avanci was reminded the monopoly risks in the licensing process of SEPs for automotive wireless communication standards, and was urged to take effective measures to prevent or rectify monopoly issues.¹¹

Over the past years, Daimler AG and Ford Motor Company have taken the patent license from Avanci respectively following patent litigation. Since then, a multitude of automakers from Europe, the United States, and Japan have respectively entered into patent licensing agreements with Avanci. However, in China - the world's largest market  for smart vehicles - the Avanci patent pool has not yet licensed any Chinese automakers.

On 28 June 2024, Avanci posted a response on its official WeChat subscription, stating that "Avanci is beneficial in helping Chinese automakers obtain the essential patents required to achieve cellular connectivity for their vehicles ... We look forward to continuing discussions with Chinese automakers."¹² In the future, the prospect for patent litigation and licensing, the potential engagement of NPEs, and the development of licensing rules within Chinese connected vehicle industry are all significant issues that deserve close observation and consideration.

iii 'Balanced' royalty

Some Chinese patentees have proposed a 'balanced' patent royalty between innovators and implementers.

To strike a balance, patent royalties should be neither excessively low nor excessively high. Setting the royalty excessively low would impede innovation, as it requires substantial and sustained investment. Investment by innovators needs to be adequately rewarded, otherwise their innovation will not be sustainable. Conversely, an excessively high royalty would impede competition, hold back small and medium-sized enterprises, and hinder the adoption and implementation of innovations.

Therefore, a balanced royalty could promote innovation by providing incentives while facilitating the widespread and timely implementation of innovations. For NPEs, taking a balanced royalty may mean they become a significant bridge between licensors and licensees in China. These advantages may, in turn, encourage more innovators to consider China as a destination for implementing and industrialising their innovations.

As patent monetisation becomes more prevalent, it seems likely that reaching patent licensing agreements through patent litigation will become commonplace in the foreseeable future. Moreover, disputes over patent royalties are expected to become more litigious.

 

1. http://www.ipfinding.cn/pc/index.html#/newsdetail?id=14&type=english

2. http://www.ipfinding.cn/pc/index.html#/newsdetail?id=6&type=english

3.https://www.wipo.int/edocs/pubdocs/en/wipo-pub-941-2023-en-world-intellectual-property-indicators-2023.pdf.

4. (2018) Su 01 Min Chu No.3469-1.

5. (2020) Jing 73 Min Chu No.907.

6. http://www.pcassociates.cn/newsinfo/7428266.html?templateId=1487827

7.  https://www.cnipa.gov.cn/art/2022/12/28/art_88_181043.html.

8.  (2021) Yu 01 Min Chu No.1232.

9. (2021) Jing 73 Min Chu No.1502.

10.  The Supreme Court (2021) MTZ No. 1 Judgment.

11. https://www.samr.gov.cn/xw/zj/art/2024/art_ec1c9ce3d71a4a5baf853d430a3b5667.html

12.  https://mp.weixin.qq.com/s/VhDsKgaUz2L4gnLCvzuXJA