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

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

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

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

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

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

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.

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.

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

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

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.

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

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

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

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.

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

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

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

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?

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

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

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

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)

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.

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.

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.

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