William Yang & Richard Wang
 

In China, as a result of the continuous increase in IP awareness among companies, the sharp increase in patent applications and intensifying market competition, the amount of patent infringement litigation has increased rapidly. It is important that companies understand the characteristics of patent rights, the relevant Chinese laws and analyse practical examples of how to defend patent infringement litigation.

Defence options 
The qualifications of the plaintiff

Having a legal interest in the object of action is premise that a plaintiff uses to start litigation. The accused party should first of all investigate the ownership of the related patent or the right of the plaintiff to enforce that patent. The only subject who has the right to initiate a litigation of patent infringement is the patentee or a relevant interested party. According to a judicial interpretation published by the Chinese supreme court in 2001, an interested party can include the legal heir to the property right of the patent, the sole licensee (who may sue in court alone) and the exclusive licensee (when the patentee does not act). The lawsuit shall be rejected if the plaintiff is not the patentee or any of the above interested parties.

Not being deemed an infringement
According to Articles 69 and 70 of the Patent Law (2008), the following exceptions to patent infringement apply. This means that, if the act of the accused party is one of the following, it can be defended:

Exhaustion: the act of the accused party using or reselling the patented product after which it is sold, while the patented product is manufactured by or with the authorization of the patentee, does not constitute patent infringement.
Prior use: the act of the accused party, before the date of application for the patent, having manufactured an identical product, used an identical process, or made the necessary preparation for the manufacture or use and continuing to manufacture of use within the original extent, does not constitute an infringement of the patent.

Prior use: the act of the accused party, before the date of application for the patent, having manufactured an identical product, used an identical process, or made the necessary preparation for the manufacture or use and continuing to manufacture of use within the original extent, does not constitute an infringement of the patent.

Use in transit: the act of any foreign means of transport which temporarily passed through the territory of China, in accordance with any agreement concluded between the country to which the foreign means of transport belongs and China, or in accordance with any international treaty to which both countries are party, or on the basis of the principle of reciprocity, to use the patent for its own needs in its devices and installations, does not constitute an infringement of the patent.

Scientific research and experimentation: the act of the accused party using the patent concerned solely for the purpose of scientific research and experimentation does not constitute an infringement of the patent.
Use to obtain administrative approval: the act of the accused party making, using and importing patented drugs or medical devices to provide information necessary to obtain administrative examination and approval does not constitute an infringement of the patent.

Use to obtain administrative approval: the act of the accused party making, using and importing patented drugs or medical devices to provide information necessary to obtain administrative examination and approval does not constitute an infringement of the patent.

An unintentional act: the act of the accused party, for business purposes, using, offering for sale or selling a patented product, without knowing that it was made and sold without the authorization of the patentee, is not liable for damages if the accused party can prove that it obtained the product from a legitimate source.

Abuse of the patent right
If the plaintiff has acquired the patent right in bad faith, for example by plagiarizing or copying the patent of another person to obtain a utility model or design patent and abusing the patent right, the accused party may defend on the basis of the patent law and other relevant laws and further request that the plaintiff be punished for showing bad faith.

Non-infringement
A defendant has four options when making a non-infringement argument.
1) The technical solution of the accused product or process lacks the necessary technical features in the claims of the plaintiffs invention or utility model patnet.

The term for initiating a lawsuit against a patent infringement is two years, counting from the date on which the patentee or any interested party is aware of or should have been aware of the infringement

2) Compared with the corresponding technical features in the claims of the plaintiffs patent, the technical solution of the accused product of process lacks at least one technical feature of the plaintiffs patent, or has one or more technical features that are neither identical nor equivalent to the corresponding technical features in the claims of the plaintiffs patent.
3) The technical solution of the accused product or process is only recorded in the description or drawings of the patent instead of the claims.
4) Technical solution of the accused article is that was abandoned by the plaintiff when they amended the claims and descriptions or made a made a written statement of abandonment during the patent examination or invalidation proceedings.

Prior art 
Where the technical solution of the accused product or process is equivalent to that claimed by the related patent, the act of the accused party does not constitute an infringement if the accused party can prove that the accused product or process is equivalent to the prior art or a technical solution simply and obviously combined by the prior arts.
Contract defence
The accused party can argue that they should not bear compensation liability if the accused product or process was legitimately obtained from a third party by licensing or assignment contract.

Contract defence
The accused party can argue that they should not bear compensation liability if the accused product or process was legitimately obtained from a third party by licensing or assignment contract.

Limitation of action
The term for initiating a lawsuit against a patent infringement is two years, counting from the date on which the patentee or any interested party is aware of or should have been aware of the infringement. If a lawsuit against the patent infringement is instituted by the plaintiff after two years and the infringement of the accused party has ceased during that time, the accused party may defend on the grounds of the default of the plaintiff.

Damages
When initiating patent infringement litigation, the plaintiff can either claim the damages according to: the loss it suffered from the infringement; the profits the accused party obtained from the infringement; the licensing royalties; or statutory damages. If the infringement is determined but the profits the accused party obtained are obviously smaller than the damages the plaintiff claimed, the accused party may defend on the grounds that the damages the damages the plaintiff claimed are far greater, provided it can prove this using a financial auditing report with credibility and other secondary evidence, such as the business licence. This will help reduce the damages that need to be paid.

Defence strategies and procedures
After receiving a warning letter or a notification for responding to an infringement action, the accused party should work closely with its counsel or patent attorney, analyse the background of the plaintiff, the impetus and objective of the action and warning and the exhibits the plaintiff provided, find out the best defence option and actively collect favourable evidence.

Filing a declaratory judgment action for non-infringement
After receiving a warning letter for patent infringement, if the accused party, after analysis, believes that there is no infringement, it may file a declaratory judgment action with a competent court, asking it to determine that the act of making, using, offering for sale, selling and importing the product which is directly obtained from the patented method, does not constitute infringement of the patent right of the plaintiff.
According to Article 18 of Interpretation of the Supreme People’s Court on Issues Relating to Law Application in Hearing Patent Infringement Cases (issued on December 28 2009), after a patent holder sends a warning of patent infringement to a third party, the party warned or interested party may urge in writing the patent holder to take legal action. If within one month from the date of receiving the written letter or within two months of the date the letter was served, the patent holder has not withdrawn its warning nor litigated in court, the party warned or interested party may sue in court for a declaratory judgment of non-infringement.

Opposing jurisdiction
As long as sufficient legal grounds and the necessary proof are available, the accused party may, within 15 days from the date of receiving the notification for responding to the action of patent infringement (30 days for the party that has no domicile within the territory of mainland China), oppose the jurisdiction and ask to transferr the case to a court that also has jurisdiction under Chinese laws but is more favourable to the party accused. This can also delay the proceeding and buy more time for preparing evidence and a good defence.

Initiating an invalidation proceeding
Subject to the availability of sufficient evidence that the plaintiff’s patent lacks patentability as provided by the Chinese Patent Law or is not in accordance with other relevant laws and should be invalidated, the accused party may file a request of invalidation with the Patent Reexamination Board (PRB) as early as possible. It is better to do this within the period designated by the court for responding to the complaint filed by the plaintiff.

This [opposing jurisdiction] can also delay the proceeding and buy more time for preparing evidence and a good defence.

Asking for a stay
Likewise, if the accused party has good evidence to prove that the patent of the plaintiff lacks patentability as provided by the Chinese Patent Law or is not in accordance with other relevant laws and has already filed a request for invalidation before the PRB within the defence period, it may ask the court to stay the trial.

Patent infringement litigation is often complicated. Each party in the litigation has its own objective and strategy. The accused party should, before acting, make a complete and concrete analysis of the impetus and objective as well as the evidence of the plaintiff in order to discover the best way to defend its own rights and interests.

Panawell & Partners, LLC
Address: 1002-1005, 10th Floor, China Life Tower 16 Chao Yang Men Wai Street, Chaoyang District 
Beijing 100020, China
Tel: (86 10)85253778/85253683
Fax: (86 10)85253671/85253672
E-mail: mail@panawell.com