China Law Insight : China Law Insight: China Commercial and Intellectual Property Lawyers and Attorneys, Full Service Law Firm: King & Wood

In judicial practice, it is difficult to prevent IP infringements conclusively and to effectively protect the interests of the rights owner due to the intangible and public characteristics of IP rights.  Therefore, it is proposed that punitive liability is necessary to protect IP rights in addition to compensatory liability.  However, as the protection of IP rights is by its very nature the protection of a limited monopoly, a balance should be struck between the interests of the rights owner and those of the public.  Therefore, conditional punitive damage awards, such as those against the infringers who intentionally and seriously infringe the rights owners' IP rights, are best suited to establish this balance.

The statutory damages provided in China's current system of IP protection, though mainly aimed at compensating the losses of the rights owner, is also considered as having a punitive nature.  However, such punitive damages are limited to some extent. For example, the laws stipulate that the amount of statutory damages shall be given subject to a certain amount or multiples and the People's Court shall consider elements such as the subjective intention of the infringers when granting statutory damages.

Undoubtedly, the application of punitive damages awards will be good for fighting against IP infringement and safeguarding the rights and interests of IP rights owners.  However, it will take some time to have this new measure applied in consideration of the consistency of the legal system, determination of a reasonable scope of application as well as the balance between rights of the IP owners and the public interest.

由于知识产权权利的无形性、公开性等特性，司法实践中存在着侵权行为屡禁不止、权利人利益难以得到有效保护的情况，因此有呼声要求除了适用补偿性赔偿责任之外，知识产权保护有必要引入惩罚性赔偿责任。但由于对知识产权的保护实质上是对有限垄断的保护，要保持权利人利益与公众利益之间适当的平衡，因此要有条件地引入惩罚性赔偿，比如对故意侵犯知识产权且情节严重的侵权人适用惩罚性赔偿责任，才不会破坏作为保护知识产权前提的上述平衡。

事实上，中国目前知识产权法律体系中设定的法定赔偿虽然是以补偿权利人的损失为主要目的，但也被认为具有一定的惩罚性的性质，但这种惩罚性是有条件限制的，如在法律规定上对法定赔偿数额有数量或倍数的限制，在适用法定赔偿时人民法院仍要考虑侵权人的主观恶意等因素。

毋庸置疑，惩罚性赔偿的引入将更有利于打击知识产权侵权行为，维护知识产权权利人的权益。但由于涉及到法律体系的统一、适用范围的合理确定以及权利人与公众利益的平衡，其实现可能并非一日之功。

The Draft Amendments provide more detailed rules governing the submission and approval of compulsory licensing applications, the application examination procedures followed by the SIPO, and the calculation of licensing fees. The Draft Amendments also specify the conditions under which compulsory patent licenses will be granted as well as the conditions under which they will be terminated. The Draft Amendments specify that where patent rights have been granted for more than three years and where a patent application has been submitted for more than four years, if the patent holder fails to exploit or fully utilize the patent rights without justification for not doing so, qualified entities or individuals with the capacity to exploit such a patent may file applications with the SIPO for a compulsory license. For more information, please refer to:http://www.sipo.gov.cn/tz/gz/201110/P020111012508894173220.doc

征求意见稿对专利实施强制许可申请的提交和受理、专利实施强制许可的审查和决定、专利实施强制许可使用费和终止等法律问题 制定了更详细的规则。征求意见稿指出，专利权人自专利权被授予之日起满三年，且自提出专利申请之日起满四年，无正当理由未实施或者未充分实施其专利的，具备实施条件的单位或者个人可以请求给予强制许可。更多信息参见：

http://www.sipo.gov.cn/tz/gz/201110/P020111012508894173220.doc

The State Intellectual Property Office (hereinafter known as "SIPO") of the P.R.C. oversees the granting of patents in the P.R.C. and provides detailed statistics on its website. Individual year statistics for invention patents granted can be seen for years beginning in 2001 through 2010. For the purposes of this analysis, the years, 2001, 2006 and 2010 were examined. Invention patents were chosen over "design" or "utility" patents because of the higher degree of rigor placed on the examination of invention patents and, arguably, a higher degree of "innovation", in many cases, associated with said patents. The statistics for invention patents for these years are as follows (percentages provided by the authors):

              Total Patents and Invention Patents Granted by SIPO (2001, 2006, and 2010)¹

As can be seen from that above statistics, total patents granted have grown by over 700,000 on an annual basis from 2001 to 2010. The sheer growth in patents granted would seem to indicate a move towards “indigenous innovation”, but when one looks at the breakouts of domestic invention patents an even stronger case for “indigenous innovation” can be made. As noted above, domestic invention patents account for 9.79% of total patents granted in 2010, as opposed to only 4.72% in 2001. As such, over twice as many domestic invention patents are being granted relative to total patents granted over this time period. Perhaps more pertinent to the questions being raised regarding the 2010 Notification, domestic invention patents now account for 58.86% of the total invention patents granted, as opposed to only 33.11% in 2001. By the rise in both the numbers of domestic invention patents granted and their numbers relative to both total patents and foreign invention patents granted, it is clear that domestic entities are playing an increasingly large role in  "innovation" in China.

Some may question whether SIPO acts more favorably towards domestic applicants and issue more patents, accordingly, in comparison to applications from foreign entities. It is, as such, valuable to look at the corresponding numbers and percentages of applications for invention patents. Again the following statistics can be found on SIPO's website.

Total Patent Applications and Applications for Invention Patents Filed with SIPO (2001, 2006, and 2010) ²

It can be see that the significant rise in the number of domestic invention patents granted is likely driven not by any inherent favoritism by SIPO towards domestic applicants, but rather by a huge upsurge in filings of domestic invention patent applications. Given this upsurge in applications, the rise in domestic invention patents granted can be expected to continue on its upward trajectory.

Looking at invention patents granted in the P.R.C. is but one possible measure of innovation and is not to be seen as wholly dispositive on the issue. It would appear by this measure, however, that the P.R.C's move towards "indigenous innovation" is well underway.

This publication is for informational purposes only and it does not in any way constitute a legal opinion.

¹ State Intellectual Property Office of the P.R.C., "Statistics", found at http://www.sipo.gov.cn/sipo_English/statistics/ (last visited on February 14, 2011).

² Ibid.

 The terms "technology," "technical problem," "technical effect," and "technical feature" are clearly defined in the Patent Law, or the Regulations and the Guidelines. Further to Paragraph 1 of Article 2 of the Patent Law, Part II, Chapter 1 of the Guidelines for Patent Examination (2010 Edition by the SIPO) ("Guidelines") further provides that "'[i]nvention in the Patent Law means any new technical solution relating to a product, a process, or improvement thereof. ...technical means is generally embodied by technical features...a solution not employing technical means to solve a technical problem to obtain technical effects in conformity with natural law does not fall under the scope as set forth in Paragraph 2 of Article 2 of the PRC Patent Law..."

Therefore, the Guidelines instruct an applicant to first consider whether a solution provided by an invention is under the scope of Paragraph 2 of Article 2 of the Patent Law and further defines a technical solution as “a collection of technical means employing natural law to solve technical problems.” When analyzing this definition, the following should be considered. A "technical solution" should be construed to have employed 1) technical means, 2) solved technical problems, and 3) achieved technical effects in conformity with the law of nature. The entirety of the claim should be examined and analyzed to determine whether technical means are employed.

Case Study:

An umbrella with an ornamental umbrella head that features a transparent umbrella head with an airtight inner cavity, an anti-freezing aseptic liquid is encapsulated in the inner cavity of the umbrella head and a small free-flowing ornament is immersed in the liquid. The description discloses that the problem the invention intends to solve is to make the umbrella more alluring.

Case Analysis

Because the umbrella head has a three-dimensional and dynamic ornament, the present application employs technical means. On the surface, this patent application aims to solve the technical problem by making the umbrella more alluring. However, the present invention modifies the umbrella structure by employing the technical means of filling a transparent, airtight inner cavity in the umbrella head with liquid and a small ornament to solve the technical problem that displays the said ornament floating in the umbrella head. As a result, this modification achieves the technical effect that the ornament floating in the umbrella head visibly and aesthetically. On the other hand, the alluring appearance of the umbrella is merely a derivative of the visual effect of the technical solution and cannot conceal its feature in constituting the technical solutions. Consequently, the features specified in the claim form a technical solution.

The present application utilizes the umbrella head's structural feature as a technical feature. By exploiting the said technical feature with technical means, it solves a technical problem by displaying the small ornament flowing in the transparent umbrella head. Furthermore, the naturally achieved effect is a technical effect.

From this example, it can be determined that if technical means consists of technical features, its solved problem is generally a technical problem, and its achieved effect is generally a technical effect in conformity with the law of nature. Essentially, contents recited in most inventions in the art of machinery can generally constitute a technical solution so long as the technical means employed consists of technical features.

One opinion is that patent ownership claims should be subject to the 2-year statute of limitations principle provided by Article 135 of the Civil Law, as there are no other provisions under the Patent Law stipulating otherwise. The date should be calculated from the date of announcement for granting the patent right.

Others argue that patent ownership disputes should be deemed as disputes under patent infringement and be handled under Article 23 of the Several Provisions of the Supreme People's Court on Issues Relating to Application of Law in the Trial of Patent Disputes (Judicial Interpretation [2001] No.20) (Interpretation), which provides that, while the patent is effective and infringement continues, patent infringement actions shall not be restricted by a statute of limitations.

A third opinion holds that the patent right is an absolute right and right in rem. Therefore, it has the same judicial characteristics as jus in re in conventional civil law. Under PRC law, the provisions on statute of limitations do not apply to enforcement by action in rem. Accordingly, patent ownership disputes is not subject to the 2-year statute of limitations.

Discussion

According to legislative intent, the statute of limitations only applies to the right to petition. Other rights, such as ownership, personal right, are rights of property dominion in nature, and thus are not subjected to the statute of limitations. Therefore, statute of limitations should not apply to non-credit patent ownership disputes.

China currently rejects adverse possession, because of its inherent conflict with traditional Chinese values and social principles. If the People's Courts refuse to grant trial due to statute of limitations, the rightful patent owner may lose his patent rights, and the announced patentee will, in all practicality, obtain the patent rights. The result is nothing short of adoption of adverse possession in China and conflicts with legislative principles of the Civil Law.

A statute of limitations only deprives the plaintiff's right to file suit, but the substantive right of ownership still exists. Dismissal due to statute of limitations does not mean that the People's Court has recognized the patentee as the legitimate patent owner and neither affirms nor denies the patent ownership status granted by the SIPO. As a result, it causes a strange situation, where legal ownership of the patent is in limbo. The ambiguities in law disrupt the social and legal relations derived from the patent rights, and will hinder the actuation of patented technology.

A patent not only brings economic benefits to the patentee, but also good reputation or recognition. Therefore, patent ownership disputes inherently involve a matter of deprivation of right to good reputation or recognition. This is pertains to a personal right, which does not vanish with the expiry of the patent right. Statute of limitations is not applicable to personal rights.

In general, the purposes of a statute of limitations are: (a) to stabilize social legal relations; (b) to encourage the timely protection of rights; (c) to avoid evidentiary difficulties. However, there is no reasonable basis for applying the statute of limitations to patent ownership disputes.

Settlement of patent ownership disputes does not affect already established legal relations. Patents are, in essence, intangible knowledge or information. Neither the patent owner nor any others can control technology or design in the same way as a tangible object. Possession and transfer of patent rights are not legally enforceable without SIPO's registration and announcement procedures. If a third party obtains a patent license in good faith, his reliance interest is protected by law and won’t be affected by the rightful patent owner's claim. The rightful patent owner's claims for compensation, license fees and assignment fees are obviously the creditor's claims and subject to the statute of limitations. In short, established legal relations, as protected under the systems of public credibility and statute of limitations, will not be undermined by rectification of ownership.

The loss of evidence due to the extended lapse of time is only a theoretical presumption. Such presumption might be correct in certain cases, but not in all cases. If the plaintiff fails to meet his burden of proof, the court may apply the Right Presumption Principle. Any such plaintiff willingly risks defeat, if he does not exercise his rights timely. This basic principle of civil proceedings is not unique to the nature of a statute of limitations but inherent in litigation. Therefore, evidentiary difficulties cannot justify application of statute of limitations to patent ownership disputes.

The second opinion asserts a statute of limitation exemption for continuous infringement is applicable to patent ownership disputes. Article 23 of the Interpretations exempts patent infringements, namely, exploitation of the patent without the patentee's consent and authorization. Since the patent infringements are not patent ownership disputes, such opinion that an exemption is available is unconvincing. Furthermore, although this opinion addresses the issue of statute of limitations in duration of patent, it does not indicate whether patent ownership disputes are subject to the statute of limitations after expiration of the patent.

The third opinion asserts that patent ownership disputes are peculiar and should not be subject to the statute of limitations. This opinion is feasible in practice for it reasonably settles conflicts between jurisprudence and legal provisions through the interpretation of laws, and thus incorporate jurisprudence and judicial practice.

Conclusion
As Chinese law has not yet explicitly stipulated the application range of the statute of limitations, judges should be allowed to exercise judicial discretion on a case-by-case basis and exclude the patent ownership disputes from the provisions of Article 135 of the General Principles.

We hope that the future PRC Civil Law may provide more reasonable and detailed stipulations on this issue.