Protect Your Patent Rights in China

With a projected growth rate of 15-20% per annum in next three years in China, the country has attracted more overseas pharmaceutical manufacturers and producers to enter the drug market and seize a larger share of the pie. However, the Chinese social environment for the protection of intellectual property right is complex with locally produced generics and copy products dominating the market. It is estimated that about 97% of the drugs produced by local companies are generics or counterfeits.

Against this backdrop, most overseas and multinational pharmaceutical companies fear that their imported drugs and pharmaceuticals produced in China will be imitated or copied, which will in turn infringe on their intellectual property rights and violate their market benefits. Lessons can be learned on why Eli Lilly & Company failed in its litigation of patent infringement dispute case in China, and Pfizer winning in an administrative proceeding against the Patent Reexamination Board of the China State Intellectual Property Office (SIPO) for its Viagra patent. Lack of knowledge of the Chinese intellectual property rights system and legislation institution, the cultural difference between China and Western countries and the language barriers incurred contributed to the wins or losses in these cases.

The China’s Guidebook for Pharmaceutical Patent Protection published by Access China Management Consulting Ltd on March 2007 introduces the protection of patent right in relation to pharmaceutical products in China.
Chinese patent system
There are three types of patent granted in China – patents of invention, utility model, and industrial design. A patent of invention is equivalent to a utility patent in the US. A utility model patent is defined as “any new technical solution relating to the shape, structure, or their combination, of a product, which is fit for practical use.” There is no equivalent in the US. China’s patent for industrial design is equivalent to a design patent in the US.

Under Chinese patent law, the following subject matters relating to pharmaceutical products can be patented:

New pharmaceutical compounds, preparations, compositions,

Processes of producing pharmaceuticals,

Use of chemical and natural substances in the production of pharmaceuticals,

New medical use or indication of a known compound or preparation,

Microorganisms,

Biotechnologies, and

Methods of obtaining new varieties of animal or plant.

Patent rights can be granted for those mentioned above, provided that they are previously unknown and unique in the market.

Chinese patent law adopted the first-to-file principle in dealing with two or more applicants claiming the same invention. This is different from the first-to-invent system of the US, where the applicant who filed first wins in China.

Patent rights protection
In China, the protection duration of the patent right for invention is 20 years from the date of filing. The protection duration of the patent right for utility model or the patent right for design is 10 years from the date of filing.

Terms of the claims in application document determines the scope of protection of the patent rights for invention or utility model. The specification and the appended drawings in application document can be used to interpret the claims. The scope of protection for patent rights should be determined by the technical features expressly stated in the claims, including the scope as determined by the features equivalent to the essential technical features.

Equivalent features refer to those that substantially use the same means, perform the same function and produce the same result as the stated technical features and that which can be contemplated by an ordinarily skilled artisan in the art without inventive labor. The scope of protection of the patent right for design is determined by the product incorporating the patented design as shown in the drawings or photographs in application document.

In China, an infringing act is one in which the infringer makes, uses, offers to sell, sell or import the patented product, or use a patented process that is described in the claims without authorization. The illegal infringing act is the essential factor in determining infringing activity. Therefore, subjective offence and the illegal infringing act of exploiting patent rights are essential features to determine infringement of patent rights.

There are direct and indirect infringements. The direct infringement occurs when, without the authorization of the patentee, persons make, use, offer to sell, sell or import the patented product, use the patented process, and use, offer to sell, sell or import the product directly obtained by the patented process, for production or business proposes. The indirect infringement happens when anyone actively induces, instigates, and contributes another person to infringe a patent.

The Chinese Implementing Regulations of Patent Law defines two kinds of infringements – the infringing act of passing off the patent, and the infringing act of passing a non-patented product off as patented product or passing a non-patented process off as patented process.

Acts of passing off the patent of another person as one’s own are as below:

Indicating the patent number of another person on the product or on the package of that product made or sold by him or it without authorization,

Using the patent number of another person in the advertisement or in any other promotional materials of his or its product, so as to mislead other persons to regard the technical process concerned as the patented technical process of another person without authorization,

Using the patent number of another person in the contract entered into by him or it, so as to mislead other person to regard the technical process referred to in the contract as the patented technical process of another person without authorization, and

Counterfeiting or transforming any patent certificate, patent document or patent application document of another person.

Acts of passing a non-patented product off as patented product or passing a non-patented process off as patented process are as below:

Making or selling non-patented products which are affixed with patent marking,

Continuing to affix patent marking on the products that are made or sold after the patent right concerned has been declared invalid,

Passing any non-patented technical process off as patented technical process in the advertisements or in any other promotional materials,

Stating any non-patented technical process as patented technical process in any contract entered into by him or it, and

Counterfeiting or transforming any patent certificate, patent document or patent application document.

In practice, the infringement of patent right has a more extensive coverage. Infringements of patent right constitute all of acts that, without the authorization of the patentee, other persons:

Make, use, offer to sell, sell or import the patented product, or

Use the patented process,

Use, offer to sell, sell or import the product directly obtained by the patented process, for production or business proposes,

All of acts that anyone actively induces, instigates, contributes another person to infringe a patent.

In China, the patent law, the civil law and the criminal law set the punitive measures for infringing activities of patent right.

Patent rights limitations
The Chinese patent law adopts the principle that the protection and enforcement of patent right should contribute to the:

Promotion of technological innovation and to the transfer and dissemination of technology,

Mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare, and

Balance of rights and obligations.

The Chinese patent law imposes some limitations on use of patent right so as to prevent the abuses of patent right. In China, the limitations of patent right have exceptions to patent right conferred, and the compulsory license for exploitation of patent.

Chinese patents enforcement
In China, there are many governmental agencies responsible for administrative protection for patent right. The main agencies are the patent authorities and the administrative authorities of customs. The patent authorities of provinces, autonomous regions and municipalities directly under the central government, and cities of districts are responsible for the patent affairs in their administrative areas handle the investigation for infringement of patent right, patent infringement disputes and the mediation of patent infringement disputes. The General Administration of Customs and its customs at the port of entry or exit are responsible for border measures of intellectual property right protection.

The People’s Courts accept cases of infringement of patent rights and cases of patent disputes. The People’s Courts can also impose criminal punitions for infringement of patent right.

Under Chinese intellectual property right protection system, a patentee alleging infringement can bring the suit directly to the People’s Court, seek the intervention of a patent administrative authority, or seek the administrative protection of a custom administrative authority. Most foreign and domestic patent disputes in China were resolved with the assistance of an administrative authority for patent affairs at provincial and municipal levels. The authority has the power to make decisions on patent infringement and to enforce settlements through the People’s Court, if necessary. Most of the administrative staff has received technical training in the patent field.

The patent administrative authorities may handle disputes involving infringement, royalties and patent ownership. They can conduct a thorough investigation of the allegations and have the authority to require the parties to submit evidence. In cases where there is alleging patent infringement, the authorities have power to mediate the dispute and to order an award in the event when the parties fail to reach an agreement. The authorities can order monetary compensation and injunctions. A party dissatisfied with the decision of the patent administrative authority can appeal the People’s Court.
The People’s Courts exercise power independently according to law and are subordinate only to the law itself. They are not accountable to any administrative body, public organization, or individual.

The People’s Courts adjudicate several types of patent disputes:

Patentability of inventions,

Patent validity,

Compulsory licenses and royalties under compulsory licenses,

Royalties to be paid for a compulsory license for a patent that has been granted,

Patent infringement, and

Ownership interests in patents.

All cases belonging to the first four categories listed above are handled by an Intellectual Property Division of the Beijing Municipal No. 1 Intermediate People’s Court. Patent infringement disputes come under the jurisdiction of local Intermediate People’s Courts in the respective provinces, autonomous regions, municipalities and special economic zones. The Higher People’s Courts in several provinces and municipalities have established special courts for appellate cases of patent infringement disputes.

The usual penalties for patent infringement are damages and injunctive relief. A reasonable royalty is also available as compensation for patent infringement. The courts have the power to confiscate and destroy the infringing products and to order a public apology as part of the recovery to the patentee. The courts can also impose criminal penalties of up to three years of imprisonment or detention, or fines for the person directly responsible for serious instances of “passing off” the patent of another person.

Exceptions to patent rights conferred
The exceptions refer to the following activities that should not be considered as infringement of patent rights:

After the sale of a patented product that was made or imported by the patentee, or with the authorization of the patentee, a product that was directly obtained by using the patented process, any other person uses, offers to sells that product. This limitation of patent right is based on the principle of the exhaustion of patent right,

Prior to the date of filing of the application for patent, any person who has already made the identical product, used the identical process, or made necessary preparation for its making or using, continues to make or use it within the original scope only. This limitation of patent right is based on the principle of the right of first user,

Any foreign means of transport that temporarily passes through the territory, territorial waters or territorial airspace of China uses the patent concerned, according to any agreement concluded between the country to which the foreign means of transport belongs and China, or according to any international treaty to which both countries are party, or on the basis of the principle of reciprocity, for its own needs, in its devices and installations.

Using patent solely for the purposes of scientific research and experimentation. This limitation of patent right is based on the principle of the promotion of technological innovation.

Compulsory license for exploitation of patent
China has three kinds of compulsory license for exploitation of patent – compulsory license for national emergencies or extreme urgency or public interest, compulsory license for cross-license of dependent patent, and compulsory license to prevent the abuse of patent right. The compulsory license is limited to patent for invention or utility model. Nevertheless, up to now, the Chinese authorities have not issued any compulsory license for exploitation of patent.

The compulsory license is issued when:
1. There is a national emergency or an extraordinary state of affairs, or when the public interest so requires. The Chinese Patent Office can grant a compulsory license to exploit the patent for invention or utility model.

2. The invention or utility model for which the patent right has been granted involves important technical advance of considerable economic significance in relation to another invention or utility model for which a patent right has been granted earlier and the exploitation of the later invention or utility model depends on the exploitation of the earlier invention or utility model. The Chinese Patent Office can, upon the request of the later patentee, grant a compulsory license to exploit the earlier invention or utility model. Upon the request of the earlier patentee, the Office can also grant a compulsory license to exploit the later invention or utility model. In this case, any entity or individual requesting a compulsory license for exploitation should provide proof that it or he has not been able to conclude with the patentee a license contract for exploitation on reasonable terms and conditions.

3. After the expiration of three years from the date of the grant of the patent right, any entity which is qualified to exploit the invention or utility model has made requests for authorization from the patentee of an invention or utility model to exploit his or its patent on reasonable terms and conditions and such efforts have not been successful within a reasonable period of time, the Chinese Patent Office can, upon the request of that entity, grant a compulsory license to exploit the patent for invention or utility model. In this case, any entity requesting a compulsory license should submit to the Chinese Patent Office a request for compulsory license, state the reasons, and attach relevant certifying documents.

The decision of the Chinese Patent Office granting a compulsory license for exploitation will limit the exploitation of the compulsory license to be predominantly for the supply of the domestic market. This will be limited only for public non-commercial use or to remedy a practice determined after judicial or administrative process to be anti-competitive.

Any entity or individual that is granted a compulsory license for exploitation will not have an exclusive right and will not have the right to authorize exploitation by any others.

The entity or individual that is granted a compulsory license for exploitation should pay to the patentee a reasonable exploitation fee. The amount should be agreed by both parties in consultation. When the parties fail to reach an agreement, the Chinese Patent Office can adjudicate the fees for exploitation, upon the request of the parties.