“Despite the remaining challenges of obtaining damages awards in China, anyone who has been an avid observer of the U.S. patent system in recent years would have to admit that the country is doing a better job of signaling its intent to promote the interests of patent owners than the United States.”
On October 17, the Standing Committee of China’s National People’s Congress completed its amendments to China’s Patent Law, marking the fourth time that China has revised its Patent Law since 1992, as well as the first revision since 2008. The amendments, which will go into effect in July 2021, include several patent owner-friendly changes, including increased statutory damages for parties proving patent infringement and the creation of punitive damages to increase damages awards up to five times upon findings that a party intentionally infringed patent claims.
Patent Owners Proving Intentional Infringement May Get 5X Punitive Damages
The patent law amendments as provided on the Chinese government’s official website show that amendments to new Article 71 (previously Article 65) governing infringement compensation now provides that, “[f]or the intentional infringement of the patent right, the circumstances may be more than one time and less than five times the amount determined.” An unofficial English-language translation of the patent law amendments indicates that Chinese courts will be able to judge the circumstances surrounding alleged cases of intentional infringement and, if those circumstances are serious enough, increase the damages award by up to five times.
The revision seemingly gives patent owners the ability to obtain greater punitive damages for willful infringement than under U.S. patent law. Under 35 U.S.C. § 284, courts are able to treble damages assessed for patent infringement, and the U.S. Supreme Court’s 2016 decision in Halo Electronics v. Pulse Electronics increased the chances that a patent owner proving willful infringement could have a court triple their damages award by doing away with the Federal Circuit’s rigid two-part test for enhancing damages. By allowing courts to levy punitive damages of up to five times the damages amount proven at trial, China’s recent patent law revisions send the message that the country wants to strongly discourage willful infringers.
Of course, other issues with Chinese courts will ensure that most enhanced damages awards in China will fall far short of similar awards to patent owners proving willful infringement in U.S. courts, even at the highest multiplier of five times damages. Damages awards under new Article 71 of Chinese patent law are based on either the patent owner’s actual loss or the infringer’s gains through infringement. However, the relative lack of discovery in Chinese court proceedings makes it difficult for patent owners to meet their evidentiary burden of proving their loss or the infringer’s gains, limiting recovery to statutory damages “[w]here it is difficult to determine the losses of the right holder.”
China Continues to Signal Its Willingness to Embrace Stronger Rights for Patent Owners
Given the importance of statutory damages in Chinese patent infringement cases, it’s notable that the recent Chinese patent law revisions also quintuple the maximum statutory damages for patent infringement from 1 million yuan ($150,000 USD) up to 5 million yuan ($750,000 USD). The revisions to new Article 71 also give patent owners the ability to be compensated for their reasonable expenses paid in order to stop the infringement. Further, this section also provides a useful new discovery tool for patent owners. Under the revisions, a patent owner that has tried its best to provide evidence relevant to proving the amount of compensation required can have a court order the infringer to provide account books and other documentation related to the infringement. If the infringer fails to turn over such evidence or turns over false account books, Chinese courts may determine the amount of compensation based on the evidence provided and the patent owner’s claim.
Again, these patent law revisions, while they do improve upon the damages that are currently available under Chinese law for patent owners proving infringement, will only provide very modest damages in patent cases relative to other jurisdictions, especially the United States. The maximum statutory award for patent infringement with even the greatest multiple of punitive damages for intentional infringement would be 25 million yuan ($3.74 million). It remains to be seen how Chinese courts will interpret the new evidentiary discovery provision, so many patent owners charting their legal strategy in China will likely peg their expectations on the available statutory damages.
Despite the remaining challenges of obtaining damages awards in China, anyone who has been an avid observer of the U.S. patent system in recent years would have to admit that the country is doing a better job of signaling its intent to promote the interests of patent owners than the United States. Many U.S. patent stakeholder groups have urged Congress to clarify Section 101 patent subject matter eligibility in the wake of a series of Supreme Court cases that have greatly expanded judicial exemptions to 101 eligibility. Last summer, a much heralded series of multi-panel hearings conducted by the Senate IP Subcommittee promised a great deal of action on the Section 101 issue, but these reforms were stalled by early 2020 in part due to an inability among stakeholders to compromise. So while U.S. patent law continues to recognize extremely narrow patent-eligibility status for inventions in medical diagnostics and software, recent amendments to patent examination guidelines in China have made it easier to patent inventions in artificial intelligence, big data and blockchain. While the U.S. will without question continues to offer much higher infringement awards, China’s increasing embrace of patent owner rights cannot be ignored in light of Chinese goals of attaining international technological dominance during the 21st century.
Chinese Patent Law to Harmonize with Hague Agreement, Drug Patent Linkage Measures
While the provisions for increased infringement damages are intriguing, the recent Chinese patent law revision includes several other changes, many of which appear to be in the hopes of harmonizing China’s system with other developed patent law regimes. Changes to Article 2 allow design patent applicants to claim partial designs and changes to Article 42 increase the term of design patents to 15 years, aligning with the term for design patents available under the Hague Agreement. Additional provisions added to Article 42 also give Chinese patent applicants the ability to request patent term extensions to compensate for unreasonable delays in patent prosecution by China’s National Intellectual Property Administration (CNIPA) as well as for patents on pharmaceutical drugs facing long market regulatory approval processes.
The Chinese patent law revisions also create a pair of patent dispute resolution mechanisms, one of which will be very familiar to pharmaceutical patent owners. New Article 76 of Chinese patent law will establish patent linkage measures that give patent owners a cause of action in Chinese courts when a dispute arises over patent rights related to the regulatory approval process for drug marketing. Similar procedures have been in place in the United States since 1984, when the Hatch-Waxman Act created similar linkage measures for patent enforcement against drugmakers seeking regulatory approval for generics. Revisions to Article 69 and new Article 70 also increase enforcement mechanisms through the CNIPA which will now be able to “handle patent infringement disputes that have a significant national impact.”
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