Inventor Boot Camp - Geoffrey Lin - 10-17-2009

PRC Patent Practice – in Comparison with the US October 2009

Overview
Filing Practice
Differences in Patent Prosecution
Utility Model Patents, Filing Strategies, and Clearances
An Introduction to Patent Invalidation
An Introduction to Patent Litigation
Case Study: The Schneider Electric Case

Filing Practice

Summary
Register your inventions as patents in the PRC
value
anti-hijacking
Often weaker PRC examination, but harmonize international prosecution such that broad and valid PRC patents are issued
Consider filing UMs and Invention Patents to cover the same concept
Patent Clearance, Submissions, Miscellaneous

Building a PRC Patent Portfolio
Strong patent portfolio often the best defence to patent actions from competitors
Competitors concerned about countersuits and invalidation actions
Strong portfolio increases costs and risks to competitors to take action against company
Strong portfolio gives leverage in licensing/cross licensing negotiations
Put in place appropriate structures ensure important inventions are patented in China
Exit Strategy: patents in China may be valuable to a purchaser of an invention or company as most large corporations are mfg or selling in China

Examination for novelty
Examiner considers following criteria when examining for novelty against prior art
Prior art will be considered identical invention. if they are "in substance, in the same technical field, [have] the same technical solution, and their prospective results are [the] same."
prior art references are considered individually, rather than comparing to a combination of references.
Public disclosure in publications in China or abroad or Public use or knowledge in China or abroad is considered prior art. Proof is an issue.
No one year grace period

Weaknesses in patent system
Shortage of Examiners
SIPO had only 900 examiners at the end of 2003, compared to about 4,000 in the U.S.
Each examiner must examine over 500 patents per year
Average time for examination 46 months in 2001 reduced to 30 months in 2003
Quality of Examiners
50% of examiners under 30
2/3 of examiners have only 1-2 years patent examination experience
Only 26% of examiners hold graduate degree
No best mode requirement
No duty of Candor
Result
Some bad patents are granted

International Harmonization of Patent Prosecution
Internationally harmonize your patent prosecution
Novelty destroying prior art
PRC patents allowed with significantly broader claims than your US or EP patent should be reviewed
Competitors and Infringers will search your counterpart US and EP patent prosecution file histories
Claim Sets
Sufficiency of Claims
Matching claims with Specification
Use EP claim sets if possible
Translation Issues

Utility Models – Subject Matter
Shape and structure only, and the applicant cannot claim a method, function, ingredients, or chemical composition.

Invention Patent vs. Utility Model
Consider whether to apply for:
Invention patent; and/or
utility model
Major differences between patent and UM:
UM only can cover product claims
the test for inventiveness is lower for a utility model which means effectively it is harder to invalidate;
utility models are not examined
utility models are granted for 10 years; patents for 20.
Invention patent infringement actions, are unlikely to be stayed if an invalidation action is filed;
in the case of a utility model, it is likely the infringement proceedings will be stayed.

Filing strategies – Dual Filing UM and Invention Patents
Some companies should consider filing both utility models and patent applications at the same time.
Rely on the utility model until grant of the patent and once the patent is about to be granted cancel the utility model.
Whether to follow this route needs to be carefully considered in light of:
Is the technology mechanical in nature?
the length of time new technology is likely to be commercialised and
the strength of protection required

Defensive Strategies
Patent Clearance
Invalidation of patents considered a risk
Building own patent portfolio

Patent clearance
Increasingly important to conduct patent clearance searches for technology both:
prior to entering the market and
after entering the market
Searches important to identify hijacking of rights where competitor may have registered a patent or utility model after reverse engineering the company's product.
Particular risk with utility models which are not examined.

Submission re pending applications
No opposition proceedings under Chinese patent law
Possible for any party to make submissions as to patentability to examiner in relation to pending application
Should be strongly considered where threatening pending application found, particularly given that examiner may not locate prior art
No duty of candour in China

Miscellaneous
First Filing Rules now confidentiality examination
Divisionals – Similar to EPO style of strict verbatim support from original specification

Invalidation of Patents

Summary
Bifurcated System (as with Germany)
No Post Grant amendment (other than combining claims) so get patents in good order
Divisionals – Similar to EPO style of strict verbatim support from original specification
Burden of Proof on Applicant to show invalidity
No Discovery and documentary evidence must be clear
If overseas evidence, must be notarized and legalized

Invalidation of patents
Patent invalidation actions filed to Patent Review and Adjudication Board (“PRAB”) in Beijing
Has good reputation as professional body with good technical skills
Appeals lie to 1 st Intermediate Court in Beijing and then Beijing Higher People’s Court
Invalidation action based on grounds that patent does not meet requirements for patentability.
E.g. lack of inventiveness, insufficiency
Experts not generally utilized. Fact witness statements can be utilized.

PRAB procedures
Applicant files invalidation action
Served by PRAB on patentee
Patentee files defence
Served by PRAB on applicant
Can be decided on paper but now normally oral hearing
Oral hearing held; both parties make oral and written submissions
Decision
General time line: Minimum 1 year; maximum 5 years plus

Patent Infringement Litigation

Summary
There are no jury trials.
Infringement and validity are tried separately;
The burden of proof is high:
PRC Courts rely principally rely on documentary evidence and require notarization and legalization for overseas evidence;
Oral evidence is extremely rare;
Judges do not usually make inferences
There is no oral or written discovery by right

Construction and Proof
There is no "Markman" style hearing.
Claim construction – like Article 69 of EPC.
Claims are interpreted based on the wording of the claims when read with the specification and drawings; and,
E very element of a patent claim must be proved by the plaintiff

Litigation - Forum Shopping
Forum shopping venue selection is a key
Consider carefully the forum to bring action
Beijing and Shanghai have better courts, but busy
Local protectionism
Where can infringing products be found?

The Courtroom

Trial
Preliminary injunction require bond
PRC case similar in burden and evidence necessary to a US Preliminary Injunction case
Experts and expert evidence (e.g., testing reports) can be utilized
Independent third party expert may be appointed by the court in complex cases

Asserting various claim types and patent types
Litigations involving Utility Models are usually stayed if defendant applies for invalidation
Method claims less useful to assert, but indirect infringement theory exists
Product by Process claims cover a new product may be used to shift the burden of proof

The Schneider Electric Case Geoffrey Lin Lovells Shanghai

Utility Models – Weak in theory
In theory weaker than an invention patent in terms of validity, but injunction and damages are available.
The record amount of damages for all IP infringement decisions in China (approx. USD48 million) has been granted for the infringement of one UM in 2007:
The CHINT Group v. Schneider Electric Case

PRC IPR Verdict Comparison
Highest reported verdict for Design Patent Infringement - Neoplan Bus GmbH V. Zonda (January 2009)
3.07
0.28
48.73
7.28
2.91
0.54
Highest reported Verdict for Utility Model Infringement prior to Chint v. Schneider - Zhongji Tonghua Auto v. Huanda Auto Assembly (Dec. 2006)
Highest reported Verdict for Utility Model Infringement-Chint v. Schneider Verdict (Sep. 2007)
Highest reported Verdict for Invention Patent Infringement -Holley Communication V. Samsung (December 2008 ）
Highest reported Verdict for Copyright Infringement - Educational Testing Service (US) v. New Oriental School (Dec. 2006)
Highest reported Verdict for Trade Mark Infringement - Zhao v. G2000 (Jan. 2008)

CHINT v. Schneider - Company Profiles
Schneider Electric
Fortune 500 company, based in Paris.
Market leader in electric systems.
Completed major M&As in Europe and China.
CHINT Group
Chinese manufacturer of low-voltage electric circuit breakers, based in Wenzhou, Zhejiang Province.
Started as a garage shop in mid-1980's and emerged as a major local player in early 2000's.
Litigation
Multiple patent infringement suits between the two in Europe and China.

CHINT v. Schneider – Wenzhou Case mid-Nov. 1997 CHINT applies for a utility model for "a miniature circuit breaker". March 1999 CHINT obtains its utility model. late July 2006 CHINT files its Complaint against Schneider at the Wenzhou Intermediate People's Court . CHINT initially sought 500,000 RMB in damages from Schneider. late August 2006 Schneider applies to invalidate CHINT's utility model patent before the Patent Review and Adjudication Board (PRAB) of SIPO. Dec. 2006 The PRAB holds oral hearings on Schneider's invalidation filed in December 2006. late April 2007 The PRAB issues its decision upholding the validity of CHINT's utility model, with respect to Schneider's invalidation filed in late August 2006. late- April 2007 Heard by the Wenzhou Court late Sept. 2007 The Wenzhou Court issues its record judgmen t (about USD47 million) . October. 2007 Schneider appeals the Wenzhou Court's judgment to the Zhejiang Higher People's Court and appeals the PRAB decision to the Beijing Intermediate Court

Comparison of Schneider Prior Patent with CHINT UM Patent

CHINT v. Schneider – Wenzhou case
Outcome (as reported by media)
Settled in April 2009 right before appellate trial.
Settlement with payment of approx. USD22 million to CHINT.
Worldwide settlement of all disputes.

CHINT v. Schneider – Wenzhou case
Lessons to learn:
UMs ("mini patents") can be used aggressively and can be difficult to invalidate.
Monitor a local competitor's IP portfolio, including its UMs (file for invalidation if necessary).
Evidence: keep complete original records
Forum Shopping: Consider filing declaration of non-infringement in your selected venue first
Consider expanding patent portfolios in China to include more UMs and using them against competitors .
Consider Dual Filing
Expect a higher burden of proof for foreign companies.

For further information Please contact Geoffrey Lin, Counsel Lovells Shanghai LLP [email_address] Tel: +86 21 6138 1688 Fax: +86 21 62792695

Inventor Boot Camp - Geoffrey Lin - 10-17-2009

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