In August 2014, China Supreme People’s Court (“SPC”) released its proposal for public comments titled “Interpretations of the Supreme People’s Court on Certain Issues Concerning the Application of Law in the Trial of Patent Infringement Cases II” (“Part II”). It is a further development of SPC’s judicial interpretation on the trial of patent infringement cases. The first part of the interpretation has been implemented since January 1st 2010, and has been an important source of authority for lower courts to deal with patent infringement cases. This second part covers more aspects of the patent litigations and would likely produce significant impacts on patent litigation practice.
In this Part II proposal, the SPC proposes 37 rules covering procedural issues, claim construction, determination of infringement and tests for defense, which may be applicable to all invention, utility model and design patents. Some of the rules were drawn from the judicial practice of guiding cases in recent years; some have been heavily debated since the amendment of the current Patent Law; and some others are new rules, e.g., those dealing with standard essential patents, which may cause some controversies.
Secondary liability (Article 25)
Secondary liability has been heavily debated in the past decade. The Tort Law enacted in 2010 builds a legal basis of joint liability for courts to hear patent infringement cases involving secondary liabilities. In the draft judiciary interpretation, the SPC specifies criteria for finding contributory and inducement liabilities, that is, knowingly providing materials or technical supports without a patentee’s authorization to assist or induce patent infringement acts. However, SPC leaves two major issues unanswered: whether the occurrence of direct infringement is the precondition of finding secondary liability and how courts shall determine damages caused by secondary liabilities.
Permanent injunction (Article 30)
The SPC lists two circumstances for not issuing permanent injunction: permanent injunction would damage the social public interest or would cause serious imbalance of interests between the parties. Not surprisingly, the issue of “serious imbalance of interests” or “public interest” leave unanswered in the draft rules. In a recent case adjudicated by the SPC, Wuhan Jingyuan v. Kubota Kasui ((2008) Min San Zong Zi No. 8), the judges ordered monetary compensation instead of issuing a permanent injunction based on the consideration of public interest. The judges stated that the shutting down of the power plant where the patented desulfurization process and devices are used will cause serious impact on the interest of the local residents. Now the industries may be concerned if the same kinds of tests will be introduced to cases involving standards essential patents.
Standard essential patents (Article 27)
One of the most notable provisions relate to standard essential patents. The SPC allows the courts not to issue injunctions against a patent infringer, if the patentee violates the FRAND principle and negotiates in bad faith. However, the rules are not clear enough, which arguably may expose legitimate patent owners to the risks of reverse patent hold-up. The SPC also allows the standard implementers to ask the courts to determine the patent royalty if the patentees and the licensees fail to reach agreements. The industries are concerned whether this will open the door for the potential licensees to convert any licensing negotiations into lawsuits.
Design patents (Article 17-21)
The SPC gives significant attention to design patents. The rules clarify that a design infringement needs to be determined based on perspectives of an ordinary consumer. The ordinary consumer is defined as a direct purchaser of the accused infringing product. The rules also introduce the concept of “design space” when comparing designs for determining infringements. The SPC further sets out standards for determining infringement regarding a “set” of products, an assembled product and a product having variable states. Companies that rely on design patents for IP protections in China need to pay close attention to this area.
Prosecution history estoppel (Article 8 and 16)
The SPC makes efforts to refine the application of the doctrine of prosecution history estoppel. It proposes that the prosecution histories of two directly related patents (like parent and divisional patents) could be used to interpret claims of each other. On the other hand, the SPC clarifies that prosecution history estoppel does not apply in case that the patentee proves that the amendment or statement was not accepted by an examiner or had no causality with the grounds under which the patent was granted or maintained. If such rules are accepted, we expect that litigants may fight over the file history much more rigorously.
Predictably, the SPC may issue the final version of the Part II by the end of 2014, unless the Court believes the current version has generated excessive amount of controversies. A new version is believed to be contemplated by the Supreme Court right now and there are signs the new modifications should be fairly modest.