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PRC Promulgated New Patent Law

12 November 2020

Adopted by the Standing Committee of National People’s Congress on 17 October 2020, the amended PRC Patent Law (the “New Law”) will take effect as of 1 June 2021.

1. Background

The current PRC Patent Law was implemented in 1985 and has been amended three times in 1992, 2000 and 2008. The New Law is the fourth revision of the PRC Patent Law and was called for amendments for the first time in 2012 due to the change of China’s economy and the Central Government’s dedication to improve intellectual property protections. In 2015, the State Council released the first draft of the amended PRC Patent Law for public comments. In 2019, the National People’s Congress passed the first draft for public comments. The second draft was published on 3 July 2020. On 17 October 2020, the current revision was finally adopted.

2. Key Amendments in the New Law

The key amendments in the New Law concern the following areas:

- Changes to protection of design patents;

- Special protection of pharmaceutical patents;

- Compensation liability for patent infringement;

- Establishment of open license mechanism; and

- Improvement of administrative enforcement mechanism.

3. Changes to protection of design patents

In order to adapt to the trend of the design industry towards the development of more refinement and to stimulate the healthy development of China’s design innovation industry, the New Law strengthens the protection of designs from the following perspectives.

(1) Protection of partial design patent

Under the current PRC Patent Law, only the overall design of a product will be granted design patent protection. Article 2 of the New Law adds language to allow partial design protection. For many years, the E.U., the U.S., Japan and South Korea all allow partial patent protection for unique features of a product because the room for innovative designs narrows as industries become more developed. Partial design patent protection not only allows companies to further protect their design rights, but also encourages companies to continue to compete and innovate the details of a product.

(2) Extension of the term of design patents

Article 42 of the New Law extends the design patent protection term from 10 years to 15 years. China holds one of the largest collections of design patents around the world. Offering 10 years of protection term may not suit China’s rapid manufacturing growth in the past decades, where lots of innovations are done around products designs. The 10-years protection term is particularly vulnerable to patent invalidations challenges, which take 8 to 12 months. If the patentee is not satisfied with the invalidation decision, then the appeals may take another few years. The validity of the challenged design patent remains unknown during the invalidation and appeals stages and may interfere with enforcement of the patent right. The extension of the protection term to 15 years may offset the foregoing challenges while give patentees more exclusivity to their innovations. Another reason for the extension is because the PRC is preparing to become a contracting party of the Hague System for the International Registration of Industrial Designs, which requires design patent terms for contracting parties to be 15 years.

(3) Right of priority for a domestic application of design patent

In addition to the right of priority for inventions and utility models, Article 29 of the New Law also provides the right of priority for design patents. Within six months from the date on which the applicant first filed an application for design patent in the PRC, the applicant may claim the right of priority when the applicant again files a patent application for the same subject matter, i.e. a subsequent patent application solving the same technical problem but which may not be exactly the same as the prior patent application in the way the patent is written or described, with the China National Intellectual Property Administration (“CNIPA”). If the right of priority is claimed, the design-patent applicant will have three months from the application date to submit a copy of the first filed patent application documents.

4. Special protection of pharmaceutical patents

The New Law provides for special protection of pharmaceutical patents from the following perspectives.

(1) Extension of term of pharmaceutical patents

To compensate for the time occupied by the review and approval of new pharmaceuticals to be launched into the market, provisions on compensation for the pharmaceutical patent term and other provisions are added in the New Law.

Article 42 of the New Law provides that in order to make up for the time spent on review and approval of new pharmaceuticals, the patentee may request patent term extension for the patents for invention related to new pharmaceuticals that have been approved in China. The extension shall not exceed five years, and the total valid patent term after the new drug is approved shall not exceed 14 years if the term extension is enjoyed.

The extension is in line with the long-standing expectations of foreign pharmaceutical companies to increase the term of pharmaceutical patents, and also with the same demand generated by China’s innovative pharmaceutical companies against the background of the continuous development of the domestic pharmaceutical industry in recent years. The extension also aligns with the provisions on intellectual property rights in pharmaceuticals of the first phase of the Sino-US Government Economic and Trade Agreement reached on 15 January 2020.

(2) Pharmaceutical patents linkage system

The New Law introduces for the first time a pharmaceutical patent linkage system. The pharmaceutical patent linkage system refers to “linking” generic drugs that applied for marketing approval with the patents of the relevant originator drugs, to address possible patent infringement issues before the generic drugs go to the market.  

According to Article 76 of the New Law, both the applicant for generic drugs marketing approval and the relevant patentee or interested party are entitled to initiate an action through early resolution mechanism to deal with patent disputes arising from the drug marketing approval procedure. Specifically, the relevant parties may request the court or the CNIPA to make a decision on whether the technical solutions for related generic drugs applied for marketing approval fall within the protection scope of others’ patented drugs. The National Medical Products Administration may make a decision on whether to suspend the approval of the related generic drugs based on an effective judgment rendered by the court or the decision made by the CNIPA.

The pharmaceutical patents linkage system includes a series of systems connecting the drug marketing approval process with the patent right granting and confirmation procedure and patent dispute resolution, and involves a complex collaborative system with drug regulatory departments, patent administration departments and judicial departments involved. The purpose of the pharmaceutical patents linkage system is to set up an early resolution mechanism for pharmaceutical patent disputes so as to resolve possible patent infringement disputes prior to the marketing of generic drugs by confirming the validity of patents for originator drugs and/or whether the technical solutions for related generic drugs fall within the scope of patent protection for the originator drugs. Thus, on the one hand, the system can avoid that generic drugs infringe upon the commercial interests of the holders of the patented originator drugs after the generic drugs go to the market, which combats the long-term research and development enthusiasm of the original pharmaceutical companies. On the other hand, it can prevent that the generic drugs that go to the market cannot continue to be supplied to patients if involved in infringement disputes, which results in damage to the public interest.

5. Compensation liability for patent infringement

In view of the persistent problems of low compensation and difficulty of proof for intellectual property rights protection in Chinese judicial practice, the New Law enhances the compensation liability for patent infringement from the following four aspects.

(1) Right holder’s free choice of the calculation method of damages

According to Article 71 of the New Law, when the patentee is claiming damages, the patentee no longer needs to first claim the patentee’s losses and then claim the infringer’s illegal profit only if it is hard to determine the patentee’s losses as the method for the calculation of damages. Instead, the patentee can freely choose the calculation method of damages.

(2) Punitive damages for intentional infringement

Previously, there were no punitive damages against intentional patent infringement. Article 71 of the New Law introduces punitive damages that allow judges to order punitive damages of up to five times of actual damages of intentional infringement. The introduction of the punitive damages echoes Article 1185 of the PRC Civil Code that will take effect on 1 January 2021, which provides that a person whose intellectual property rights are intentionally infringed upon with serious circumstances shall have the right to request the corresponding punitive damages.

(3) Increase amount of statutory damages

Article 71 also increases the maximum statutory damages from RMB 1 million to RMB 5 million when actual damages cannot be determined. The increase of the maximum damages to RMB 5 million was well expected after the increase of the maximum compensation to RMB 5 million in the PRC Trademark Law which took effect on 1 November 2019. 

(4) Shifted burden of proof for damages

Article 71 also provides that where the patentee has tried his/her best to provide evidence, and the account books and materials related to the infringement are mainly under the control of the infringer, the court may order the infringer to provide such account books and materials related to the infringement. Where the infringer does not provide or provide false account books and materials, the court may determine the amount of compensation by reference to the patentee’s claim and evidence.

6. Establishment of open license mechanism

In addition to the compulsory license for exploitation of a patent, a system called open license mechanism for exploitation of a patent is established for the first time for the purpose of strengthening public services for patents and to promote the implementation and application of patents.

(1) According to Articles 50 and 51 of the New Law, under the open license mechanism, where a patentee voluntarily makes a written declaration before the CNIPA that he/she is willing to license any entity or individual to exploit his/her patent, and specifies the means of payment and standard of license fees, and the CNIPA makes an announcement for such license, an open license is established.

(2) Any potential licensee may obtain the license by notifying the patentee in written form and paying the license fee in accordance with the means and standard specified in the patentee’s announcement. The license shall only be a non-exclusive license but shall not be an exclusive or sole license for the patent.

(3) In order to encourage more patentees to voluntarily implement the patent opening license, during the life of an open license, the patent annuity paid by the patentee shall be reduced or exempted accordingly.  

7. Improvement of administrative enforcement mechanism

The previous PRC Patent Law only grants the power to Intellectual Property Administrations at local levels to directly investigate and deal with patent infringement disputes. To improve the administrative enforcement, the New Law gives the CNIPA the responsibility and power to directly deal with patent infringement disputes which are with significant impact, meanwhile also gives local Intellectual Property Administrations more flexibility and jurisdiction in dealing with patent infringement disputes, which are as set forth in Articles 69 and 70 from the following three aspects:

(1) For patent infringement disputes with significant nationwide impact, the patentee may request the CNIPA to handle the disputes.

(2) Where the local Intellectual Property Administrations handle patent infringement disputes, the cases of infringing the same patent within the administrative region can be handled together. For cross-regional cases of infringing the same patent, the local Intellectual Property Administration at a higher level can be requested for handling.

(3) The CNIPA and local Intellectual Property Administrations shall have the right to question the parties concerned, and investigate the circumstances related to the suspected illegal act, conduct on-site inspection of the places where the suspected illegal act is committed and check the products related to the suspected illegal act. The CNIPA and local Intellectual Property Administrations may order the infringer to cease the infringement immediately if they determine that an infringement is established, but they have no right to impose penalties on the infringers or award damages to the patentee. The patentee can request the CNIPA or the local Intellectual Property Administrations to carry out mediation concerning the amount of compensation for the patent infringement or can file a civil litigation before the People’s Court if the mediation fails.

8. Other noticeable amendments

Other noticeable amendments in the New Law are the following:

(1) Service invention-creations

As one of the measures to promote the implementation and utilization of patents, the New Law provides for new stipulations for service invention-creations. In Article 6, it stipulates that an entity may dispose of its rights to apply for patent and patent right of its service invention-creations, which means the rights to apply for patent and patent right of the service invention-creations do not automatically belong to the entity, the entity has the right to determine whether the entity itself, or the inventor or third parties  own these rights Further in Article 15, it stipulates that the State encourages the entity that has been granted a patent to implement property rights incentives to enable inventors and designers to share reasonable benefits from innovation by means of equity, options dividends or other means.

(2) Principle of good faith

In Article 20, the New Law provides that the principle of good faith shall be complied with in applying for patents and exercising patent rights. Patent rights shall not be abused to harm public interests or the legitimate rights and interests of others. In practice, for instance,  acts which constitute abusing patent rights include that a patentee maliciously applies for patent of a technical scheme that clearly does not have the conditions for being granted design patent or utility model and sues others after the patent is granted, or at the time of the lawsuit, the plaintiff knows that there has been a public sale of goods similar to the design patent before the design patent application date, but still files a lawsuit against others, etc.

(3) Grace period for an invention-creation made public for the purpose of public interests

In Article 24, the New Law provides for grace period for an invention-creation made public for the purpose of public interests. Within six months before the date of application, in the case of national emergency or exceptional circumstance, an invention-creation first made public for the purpose of public interests does not lose its novelty. The purpose of this amendment is to fully safeguard the rights of patent applicants in order to ensure that new technologies that have not yet been patented can still be applied for and obtained patent protection after public use in the event of an emergency, such as the current COVID-19 epidemic, which endangers the public interest.

(4) Conditions for granting a patent

In Article 25, the New Law adds that nuclear-transformation methods are not patentable subject matter.  

(5) Extension of time limit for claiming right of priority

In Article 30, the New Law provides that the time limit for submitting a copy of the first filed patent application documents is extended from three months to sixteen months where the priority is claimed to the earlier filed application for invention or utility model.

(6) Period of limitation for action

In Article 74, the New Law provides that the period of limitation for action against a patent infringement shall be changed from two years to three years. This is consistent with the stipulations of the PRC Civil General Law and the PRC Civil Code.

(7) Patent evaluation report

In Article 66, the New Law provides that where a patent infringement dispute involves a utility model or a design patent, in addition to the patent evaluation report issued by the CNIPA, the patentees, the interested parties as well as the accused infringers may also initiatively issue the patent evaluation report by themselves serving as evidence to be presented to the People’s Court or the administrative authorities.

9. Conclusion

In summary, the New Law provides for main revisions and improvements in three aspects including strengthening the protection of the legitimate rights and interests of patentees, promoting the exploitation and use of patents, and improving the patent granting system. These amendments and newly established systems in the New Law may contribute to strengthening the trust in China’s patent protection system. We expect that in the near future for implementation of the changes further implementing rules will be published.

Authors

Panpan Tang
Panpan Tang
Associate
Shanghai