China: new Draft Patent Law– what to expect and what not to expect

On 6 July 2020, China's National People’s Congress (NPC) released its latest Draft Patent Law for public comment (English translation available upon request), proposing, amongst other things, a patent linkage system, patent term extension for pharmaceutical patents, higher damages for patent infringement, an evidence burden shifting provision, the availability of design patents for partial designs and more options for rewarding employee inventors.

The current version of the Chinese Patent Law, which dates back to 2008, is generally seen as outdated and in need of significant amendment. The fact that this is already the fifth time (since 2012) that a draft version has been issued reflects the hotly debated nature of the new provisions of the Patent Law, and the many interests at stake.

Highlights of the new Draft

The Draft (here in Chinese) contains a number of important changes compared to the current law and the latest draft published by the NPC in January 2019 (see our earlier article here). The highlights of the new Draft are as follows: 

  • Patent term extension for pharmaceutical patents (art. 42): Similar to the legal regimes already existing in the European Union and United States of America, the Draft would allow patentees of innovative pharmaceuticals to apply for a patent term extension of up to five years, if the effective term of the patent after obtaining marketing approval is less than 14 years. The 2019 Draft also contained this provision, but the current Draft does not require the application for marketing approval to be simultaneously applied for in China and abroad.  This patent term extension was included in the Phase One Agreement between China and the USA (see our article here). However, some issues regarding patent term extension remain unclear and will need to be dealt with in further legislation or regulations. As discussed in our earlier article on the pharmaceutical aspects of the new Draft, it remains unclear whether the extension will be available for the first marketing approval of a given product, an active ingredient, or an active moiety. This is likely to have a significant impact on the  value and impact of patent term extensions to innovator companies.
  • Patent term compensation (art. 42):  a patent term compensation would be available if the grant of an invention patent is delayed and takes more than four years from the date of filing of the application, or three years after a request for substantive examination, and such delay is not attributable to the applicant. This patent term compensation was also included in the Phase One Agreement between China and the USA (see our article here).
  • Patent linkage (art. 75): Patent linkage was a hotly debated issue under the Phase One Agreement between China and the USA (see our article here). The new Draft sets up a patent linkage system which allows a pharmaceutical patent owner (or another stakeholder) to seek a court judgment or decision by the patent authority (CNIPA) regarding patent infringement within thirty days after publication of an application for drug marketing approval for a generic drug. The party seeking the drug marketing approval may also bring a claim for a declaration of non-infringement, if the patent owner or stakeholder does not bring the action within the prescribed thirty days (see also our earlier article on the pharmaceutical aspects of the new Draft).  The current Draft does not require generic drug filers or the drug regulator to notify patentees of an innovative drug or provide statements about non-infringement; instead, the thirty day period starts following publication of the marketing approval application by the drug regulator. Patentees of innovator drugs will, therefore, need to continuously monitor generic drug applications and be ready to start infringement actions within thirty days. Some pre-planning for litigation, particularly by foreign patentees, would be advisable. Once an infringement action is started, the generic drugs approval process would be stayed for nine months while the infringement action proceeds.
  • Design patents: extended protection and protection for partial designs (art. 2 and 42): under the Draft, the term of validity for design patents would be increased from the current 10 years to 15 years. This is likely to bring this in line with the term of design patents under the Hague Agreement Concerning Industrial Designs.  A second major change to the design patent system would be the protection of partial designs. Throughout the eight years that draft patent laws have been issued, such protection has been added and removed again in the different drafts. The current Draft has reinstated it.  Partial design protection would enable patent protection for part of the design of a  product, instead of only the entire design of products (or separate parts of a product).  It would allow entities to protect the “DNA”, or a unique product design element, in different products and exclude parts of a design that have less “design value”.  It would also mean that design patent infringement could extend to copying the patented part of the design of a  product  even if the overall visual effect of the entire product is different.  The NPC particularly noted that including this protection would inspire innovation and is also in accordance with current international practice. 
  • Higher statutory damages and introduction of punitive damages, but minimum damages abolished (art. 71): Similar to the 2019 Draft, the cap amounts for damages for patent infringement are significantly increased.  Firstly, the amount of statutory damages (i.e. lump sum damages granted by a court if the claimant cannot provide sufficient evidence of their actual damages) are significantly raised from a current range of RMB 10.000 to 1 million to a proposed cap of RMB 5 million (similar to the cap under other recent IP legislation). However, it is disappointing that the minimum statutory damages (RMB 10.000 under the current law and RMB 100.000 under the previous draft) is abolished under the new Draft. This means that the actual damages granted in practice could still be very low. Secondly, the concept of punitive damages for "serious" willful infringement is maintained from the previous 2019 Draft. This would mean that such severe infringements would be punishable with up to five times the determined amount of direct damages. A change from the 2019 Draft is that under the current Draft, the priority of different damage calculation methods is amended, proposing that the right owner’s losses or the infringer’s illegal gains shall both be first priority options for damages calculation in the cascade system of damages calculation.
  •  Evidence burden shifting provision (art. 71): Similar to the 2019 Draft, the current Draft contains a provision allowing for the shifting of the burden of proof for damages in some cases. If the evidence needed to calculate the damages (e.g. accounting books and other materials) is held by the infringer, and the infringer refuses to submit them to the court when ordered to do so, or submits fabricated evidence, the court can determine the amount of damages based on the initial evidence and calculations of the patent owner and the failure of the infringer to satisfy their burden of supplying contrary evidence. This is also largely a codification of existing judicial practice.
  • Employee - inventor remuneration with stocks, options and dividends (art 15): Similar to the 2019 Draft, under the current Draft, companies are 'encouraged' to remunerate employee inventors or designers in the form of stocks, options, dividends etc. as part of a company employee-inventor policy. The Draft underlines its aim to enable inventors or designers to reasonably share in the proceeds of innovation. The Draft remains relatively vague on minimum inventor remuneration and details regarding a reasonable employee-inventor policy, which is left to implementing regulations.
  • Good faith and anti-patent abuse provision (art. 20): A new article under the Draft provides an explicit duty of good faith for both patent applicants and patentees in enforcing their rights. This provision is presumably most useful in cases where invalid rubber-stamp utility model and design patents (which are granted without substantial examination) are used to extort money from others. The article moreover states that patentees cannot use their patents to exclude or restrict competition, but provides that abuse needs to be dealt with under the Anti-Monopoly Law (which is also under revision). This is beneficial as it avoids divergent interpretations under different laws.
  • Open patent license system (art. 50-52): Similar to the 2019 Draft, the new Draft sets up an open patent license system, presumably to boost patent utilization numbers. Under this system, a patentee can register a declaration with the Chinese patent office, stating that it is willing to grant an "open license" to any entity or person that accepts a license under certain pre-specified standard license conditions. During the "open licensing period", any candidate-licensee could obtain a license under the patent by sending a written notice to the patentee and paying the specified fees, with the caveat that the patentee isn't allowed to grant a sole or exclusive license under the patent during the term of the open license. The Draft further clarifies that during the open licensing period, a regular patent license can still be individually negotiated and agreed with the patentee.

What happens now?

The draft, if passed, would significantly change China's current patent law. The NPC has announced a public comment period, which runs through 16 August 2020. This offers all stakeholders an opportunity to voice support and/or suggest revisions to enhance the current draft.

Next steps

Should you have further questions about the draft, or should you wish to submit comments on the draft through our China offices, please get in touch with our contacts listed below as soon as possible.

Authored by Julia Peng, Stefaan Meuwissen, Andrew Cobden and Katie (Zhen) Feng.

 

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