China Law Insight : China Business and Intellectual Property Lawyers & Attorneys : King & Wood Law Firm : IP, Arbitration, Litigation, Securities, Foreign Investment

In paragraph 106, he expanded deductibility as capital expenditure of the purchase of registered trademarks, copyrights, and registered designs. Under the current scheme, only purchase of patent rights and industrial know-how are deductible. The purpose of the expansion is to promote wider application of intellectual property and to help develop the creative industries in Hong Kong. Actual formulation for deductions will be prepared by the Inland Revenue Department. This addition brought in the most common types of intellectual property rights transferred in Hong Kong and will serve as a boon for creative entrepreneurs.

The second item concerns funding for patent applications. Currently, the Hong Kong Government provides funding assistance for Hong Kong inventors and enterprises to help them pay for the cost of filing their first patent application. The current ceiling of such grants and funds is HK$100,000. In paragraph 107, Mr. Tsang raised the ceiling to HK$150,000. Hong Kong has a recordation system for patent registration that requires the granting of a patent in another jurisdiction before a Hong Kong standard patent may be issued. To obtain a Hong Kong standard patent, an inventor must file in an approved jurisdiction where substantive review is conducted and a patent granted before a Hong Kong patent can be registered. In essence, the inventor has to pay for two patent applications to have a Hong Kong patent granted. The increase in the funding should be helpful for small inventors.

Compared to other ‘sweeteners’ offered in the speech, these two additional benefits offered for intellectual property rights are fairly minor but will have a relatively broad application. At least, the topic of IP rights is not completely left out of the speech. A full copy of the Budget report can be downloaded at www.budget.gov.hk.
 

China filed 7,946 applications, an impressive 29.7% increase over its 2008 filings. Two Chinese filers were among the top 100. Huawei Technologies Co., Ltd. came in with 1847 applications, second only to Japan's Panasonic Corporation and ZTE Corporation jumped 15 places to finish 23rd with 502 filings. Together, these two companies accounted for 30% of China's 7,946 filings. For the year, Huawei filed 110 more applications than in 2008, an increase of 6.3% while ZTE increased by 52.6%, submitting 173 more applications into the PCT system than in the previous year.

The prolific activities of these two equipment makers in the telecommunications industry indicate the importance of protecting intellectual property rights in multiple jurisdictions as Chinese companies expand beyond China's shores to become players in the global market. The WIPO statistics indicates that Chinese companies are taking advantage of using PCT applications for international protection.

The PCT procedure gives an applicant the convenience of filing initially only one patent application with one set of papers in one language with a receiving office designated by the PCT. At a later stage, should the applicant desires, it can then choose the jurisdictions where the patent application should be filed. Only at that stage would the applicant have to pay for necessary translations and filing fees of the national jurisdiction where the application is filed. The procedure gives the applicant much more control over the application process. Companies with proprietary knowhow or inventions interested in expanding overseas should consider this option as part of their patent application strategy.
 

By so ruling, the Federal Circuit effectively overruled its own “useful, concrete and tangible result” test formulated in State Street Bank & Trust Co. v. Signature Financial Group, Inc., 143 F.3d 1368 (Fed. Cir. 1998). This test focused on practical applications of the invention to determine if it is patent worthy. That decision was said to have led to the boom of business method and software patents in the past decade. The rejection of the useful, concrete and tangible result test raises questions about the validity of many existing business method and software patents. Because of the high stakes, dozens of interested parties filed a total of 44 amicus or ‘friends of the court’ briefs to express their viewpoints and concerns.

Few observers believe Mr. Bilski’s claims can survive either the useful, concrete and tangible result or the machine or transformation test. It is also unlikely that the Bilski claims will meet the standard ultimately adopted by the Supreme Court.

However, there is no consensus on whether the Supreme Court will come out with a new test or even if it will fully addressing the harder question of what the proper test for patent eligibility of business method or software claims. Indeed, the issues are complex and from the questions asked during oral argument, the high court seemed to lack confidence in dealing with the complexity of this area of patent law.

The questions of the justices reflect their concerns about broadly worded business method patents that may foreclose use of business processes by other parties. They peppered Mr. Bilski’s lawyer with hypothetical questions on the patentability. They asked about patentability of claims relating to estate plan, tax avoidance, resisting corporate takeovers, choosing juries (Ginsburg, p. 5); processes that help business succeed (Breyer, p. 6); speed dating (Sotomayor, p. 7); teaching antitrust law without students falling asleep (Breyer, p. 9); compiling actuarial tables and their application to risks (Kennedy, p. 11); horse whispering (Scalia, p. 16); and alphabet as a process of forming words (Roberts, p. 22). Transcript of the oral argument is available at www.supremecourtus.gov/oral_arguments/argument_transcripts/08-964.pdf.

Section 101 of the U.S. Patent Act provides that new and useful processes, machines, manufacture and composition of matters are patent eligible. This is very broad language. So under a Section 101 analysis, these extreme examples are patent eligible. In fact, the justices may be surprised that patents actually have been granted for the extreme examples they cited.

Although concerned about the broadness of Section 101, they were also clearly uncomfortable with the rigidity of the machine or transformation test the Federal Circuit ruled as the sole test for determining patentability of process claims. The justices recognize that technological advances mean that inventions may not necessarily have physical attributes. Thus, they seemed inclined to reverse the Federal Circuit’s ruling but at the same time, they struggled with finding and enunciating an appropriate test of patent eligibility.

Business method patents in China

Chinese patent laws do not have a specific category for business method claims so the standard applied to such claims are no different than other technical or computer related applications. Business method claims are patentable under Chinese law if they incorporate technical features to achieve a business or commercial purpose. The claim must specify the technical features required to be implemented on a commercial or business purpose. A detailed description of a business method without showing the technical features necessary for its implementation will not be patentable under Chinese law. Technical features must be an integral part of the business method. Thus, the Chinese standard is similar to the machine branch of the machine or transformation test.

Applying Chinese law, the Bilski claims will also be rejected. But a Chinese granted business method patent will also survive scrutiny under the machine or transformation test. On the other hand, business method patents granted under the useful, concrete and tangible result test may not be patentable under Chinese law unless they also incorporate sufficient technical features.

How will the Supreme Court resolve the problem?

Our speculation is that the Bilski claims will be rejected and the Supreme Court will reverse the Federal Circuit ruling that the machine or transformation test is the only test for patent eligibility. Instead, the Supreme Court may try to find a compromise standard that will allow protection of some business method and software claims but will screen out broad and abstract claims such as the Bilski claims. If we are correct, the new ruling may widen the gap between Chinese and U.S. law that the machine or transformation test had narrowed.

What was interesting about the oral arguments was the lack of mention of Section 112 of the Patent Act. This section also covers patent eligibility and requires that an invention must be specified in “full, clear, concise, and exact terms as to enable” someone to make and use it. While Section 101 uses broad language, Section 112 requires specificity in the claims. This serves to prevent abstract claims from gaining patent protection. These sections work together to prevent an inventor from precluding others from practicing a useful art merely by making general and broad claims. To be patentable, a claim must be sufficiently specific to enable someone to practice its teachings.

Since Section 101 should be read in conjunction with Section 112, one would think that Section 112 would be raised during oral arguments. Even if the Bilski claims can survive the broad language of Section 101, it would not pass muster under the specificity requirements of Section 112. Thus, the failure to bring up Section 112 has been described by a commentator as the elephant in the room that no one mentioned. The Bilski claims cannot pass Section 112 analysis. This will allow the Supreme Court to sidestep the machine or transformation test completely.

How will the Supreme Court rule? We will find out sometime in the spring 2010 when the decision is expected to be announced.

Up to the present, no unified view has been formed regarding the scope of "common knowledge" among examiners, patent attorneys and academics in China. According to the Guidelines, common knowledge refers to technical means disclosed in publicly known textbooks or reference books, including technical dictionaries or manuals, and customary means in the art to solve a particular technical problem. It is generally accepted that technical dictionaries, technical manuals and textbooks can be used as evidences for ascertainment of common knowledge. But some believe that the scope of "common knowledge" provided by the Guidelines is too broad and that many technical dictionaries, technical manuals and textbooks should not be regarded as common knowledge although they are highly specialized.

Ascertainment of Common Knowledge

Regarding ascertainment of common knowledge, the majority view is that common knowledge should be "publicly known facts". It is also an established rule that publicly known facts (also known as "prominent facts") do not need to be proved. In general, publicly known facts refer to facts that are indisputable and known to all or most people in a certain region or specialized in a particular field. However, the following elements should be taken into account when one ascertains common knowledge as publicly known facts:

Firstly, publicly known facts do not necessarily be known to the general public but must be well known to those who are specialized in a certain field in a particular temporal and spatial scope. In other words, these facts are general technical common knowledge known to those skilled in the art prior to the filing date of the patent application.

Secondly, according to evidence law, publicly known facts may be introduced into evidence by judicial notice. A court can admit judicial notice of a publicly known fact in a given lawsuit case in any procedure or phase of litigation where it believes necessary or upon the concerned party's request. Such notice is not subject to the time limit for submitting evidence.

Thirdly, where one party challenges the "common knowledge" asserted by the opponent party or confirmed by the Patent Reexamination Board, the opponent party or the Patent Reexamination Board should furnish pertinent materials and provide sufficient explanations. When one party raises opposition to a judicial notice taken by the court, the court should explain to the party the grounds on which and procedures via which the judicial notice is taken.

Fourthly, where there is counter evidence to overturn the facts confirmed through judicial notice, the party asserting the facts also needs to furnish evidence.

With regard to evidence, some think that common knowledge should be judged in accordance with knowledge of one skilled in relevant art and it is unrealistic to for the parties to adduce evidences for all common knowledge. Common sense in life does not need to be testified, nor does technical common knowledge. An exception is that the Patent Reexamination Board should bear the burden of proof when one party proves the confirmation of technical common knowledge by the Board is erroneous. Another view is that the coverage of common knowledge is wider than publicly known facts, which are not required to be testified, and the Patent Reexamination Board should only bear the burden of proof when a discrepancy exists between scopes of administrative notice and judicial notice regarding a particular fact.

Burden of Proof During Invalidation Procedures

a. A petitioner or the opponent party bears the burden of proof for its assertion that a certain technical means is common knowledge. If necessary, the Patent Reexamination Board can ask the party asserting certain technical means as common knowledge to adduce evidences.

b. Where one party explicitly raises opposition to the other party's common knowledge assertion, the challenged party bears the burden of proof.

c. The Patent Reexamination Board may ex officio introduce common knowledge in its decision-making process. But the Board may increase its burden of proof in the proceedings by doing so.

During patent prosecution or invalidation proceedings, the examiner, the applicant and the attorney should define the scope common knowledge in the art involved in the patent applicant in question from the perspective of one skilled in the art. Examining and analyzing what facts or technical means should be subject to common knowledge helps to evaluate the inventive step of a patent application in a fair and reasonable manner and avoid abuse of common knowledge in the art.
 

B. Reinforced Administrative Protection

The New Patent Law elevates the powers previously granted to the administrative authority including the power to inquire, conduct site inspections, duplicate relevant documents, etc. Furthermore, the new article also grants new powers of attachment and seizure, which are expected to reinforce the administrative protection of patent rights.

C. Increased Responsibility of Indemnification

The maximum fine for patent counterfeiting has been raised from 3 times the value of the illegal proceeds to 4 times. In cases where there are no illegal proceeds, the maximum fine has been raised from RMB 50,000 to RMB 200,000. The New Patent Law includes a provision concerning statutory compensation between RMB 10,000 to RMB 1,000,000, which the current Patent Law does not have any provision for. According to the judicial interpretation issued by the Supreme People's Court, the maximum statutory compensation that can be granted at the court's discretion is RMB 500,000.

D. Further Perfected Judicial Protection

The New Patent Law stipulates the procedure for pre-trial injunction, which was not previously provided for in the current Patent Law nor the PRC Civil Procedure Law. The New Patent Law also stipulates the procedures for pre-trial asset preservation. Such provisions will provide clearer guidelines to courts on the relevant procedures in the future.

E. Two Newly Added Causes for Non-infringements

“Parallel Importation” is expressly permitted in the New Patent Law. The existing patent law, and also other intellectual property laws, was silent on the legality of parallel importation.

The New Patent Law also provides an exception for infringement similar to the BOLAR exception in the US, which exempts pharmaceutical companies from infringement for the manufacture, use, and import of patented drugs or medical devices for the purpose of seeking administrative approval.

Generally, the amendment of patent laws has reflected the government's efforts to curb patent infringement and to protect intellectual property. Meanwhile, the public interest and the need for a healthy and competitive market have also been taken into consideration. The enforcement of patent rights in China is has now taken a step forward in its efficiency.