Chinese Patent Litigation: A Comparative Overview

Patent litigation in China has become an unavoidable prospect for many international companies, as a series of systemic reforms—and the temptation of readily available injunctive relief—have helped turn Chinese courts into increasingly attractive forums for patent plaintiffs. Making matters more complicated, it has historically been difficult for companies to assess their risk in China, given both the limited availability of litigation data and the inherent challenges in distilling that data into actionable intelligence.

To address these concerns, RPX will be integrating Chinese litigation data into our patent litigation intelligence platform, RPX Insight. Our goal, once this project is complete, is to allow users to explore the contours of Chinese patent cases and uncover both general trends and specific data in order to inform their global IP strategy.

In this post, we provide an overview of how China’s legal system differs from that of the US with respect to patents, including the different types of patents available in China, the procedures and remedies offered by Chinese courts, and caveats with respect to data transparency. Subsequent posts will analyze that data directly, providing quantitative insight into the state of patent litigation in China.

Overcoming Preconceived Notions

A key hurdle for China and observers of its patent system alike has been a lingering, systemic hostility to private IP rights and enforcement. The result in years past was a widespread skepticism that China’s courts provided effective venues for the enforcement of patent rights, as well as a prevailing assumption that foreign parties may be at a disadvantage due to the country’s ongoing focus on promoting domestic industries. However, in recent years the Chinese government has pivoted to embrace the idea of protecting intellectual property and has tried hard to combat worldwide misconceptions about China’s patent system, even going so far as to explicitly list the equal treatment of foreign and domestic businesses as a policy priority.

Skepticism of Chinese IP enforcement derives in part from structural differences in the system itself and the mechanisms to change it, relative to Western expectations. When the Chinese government identifies problems with its patent system, it rapidly effects sweeping reforms, in stark contrast to the incremental progress seen in the US. The result is that outside observers’ impressions of China’s patent litigation system become quickly outdated, and this disconnect can put potential parties to Chinese patent cases at a disadvantage.

Data Transparency and Reporting

That disconnect is compounded by the fact that compared to American litigation, a narrower range of data from patent cases is reported to the general public in China. Unlike the US system, where individual filings are publicly available from a court docket, in China, cases are reported only when they reach a decision, rather than at the time of filing. Even then, only judgment documents are made available, providing little to no insight into the underlying case. Furthermore, when a decision is issued on appeal (a second-instance decision), the underlying first-instance decision is usually not reported. (A full explanation of first- and second-instance proceedings can be found below.) Settlements are also typically not reported in Chinese patent suits.

While this lack of transparency may be jarring to Western observers, particularly those accustomed to systems like PACER, it is nonetheless an improvement over years past, as the Chinese government has made a concerted effort to make more litigation documents accessible to the public.

Types of Chinese Patents

Three types of patents are available in China: invention patents, utility model patents, and design patents.

• An invention patent, which is similar to a US utility patent, is valid for 20 years and covers technical solutions concerning an apparatus or method, requires subject matter that represents “notable progress” over the prior art, and is granted only after substantive examination by the Chinese patent office, the China National Intellectual Property Administration (CNIPA), which usually takes three to five years. (The CNIPA was formerly known as the State Intellectual Property Office (SIPO) and was renamed on August 29, 2018, under a restructuring plan wherein the agency now falls under the supervision of the newly established State Administration for Market Regulation. The name of the latter has been translated by some English-language media outlets as the “State Administration of Market Supervision” and variations thereof.)
• In contrast, a utility model patent is valid for ten years, protects only technical solutions related to the shape and/or structure of a product, requires only “progress” over the prior art, does not undergo a full substantive examination (merely a formality examination), and usually issues in less than 12 months, allowing much earlier protection. One can file for both types of patent for the same invention, although the patentee must abandon a utility model patent should an invention patent issue.
• Finally, China offers design patents, which cover a product’s external features with respect to pattern, shape, and/or color, as long as those features are capable of being mass-produced; also have a ten-year lifespan; and do not require substantive examination.

China has effectively implemented a two-tiered patenting system by offering invention and utility model patents, with the latter offering protection sooner after filing in return for a more difficult assertion process. Since a utility patent has not undergone a full substantive examination before issuance, courts generally require that the plaintiff first submit an evaluation report before accepting a complaint. This evaluation report is issued by the CNIPA after a non-appealable administrative process that essentially provides an examination of the patent.

Patent Litigation Procedures in China

Patent infringement cases in China begin with first-instance proceedings, which are loosely akin to district court lawsuits in the US.

While patent cases could previously be brought in any regional People’s Court, starting in late 2014, China significantly reduced the number of courts that have jurisdiction to hear patent cases, a series of changes designed to curb forum-shopping. Beginning with the creation of three specialized Intellectual Property Courts in Beijing, Shanghai, and Guangzhou, along with the ongoing formation of Intellectual Property Tribunals in certain other regions, China has consolidated exclusive patent jurisdiction for their respective territories in those judicial bodies. Patent cases filed in a given province must be brought in a specialized IP court or IP tribunal if available; otherwise, such lawsuits may still be filed in a regional People’s Court.

First-instance infringement judgments may be appealed in a second-instance proceeding, which are usually brought before either a High People’s Court or the Supreme People’s Court, although the Chinese government has recently disclosed that it is studying the creation of an IP appeals court with centralized jurisdiction.

Unlike in the US, invalidity claims cannot be made in Chinese courts and can be brought only in separate administrative proceedings before the CNIPA’s Patent Reexamination Board (PRB). This is more restrictive than the approach taken in other countries that also require infringement and invalidity claims to be filed separately: for instance, plaintiffs in Germany can bring both civil invalidity suits (nullity actions) filed in courts as well as administrative validity challenges, while in China only the latter are available. The PRB generally takes six to twelve months to reach a judgment. Invalidity appeals go exclusively to the Beijing IP Court, with potential further appeal to the Beijing High People’s Court.

In China, patent cases are not tried to a jury and are conducted with virtually no discovery—both sharp departures from the US system. While Chinese courts may conduct their own investigations and collect evidence when parties are unable to do so, they rarely take that step, and in practice parties must usually collect evidence themselves to meet what is effectively a higher burden of proof that the Chinese system places on its patent plaintiffs.

Patent Remedies in China

Additionally, patent litigation remedies in China differ from those available in US courts.

Damages are available in China, but awards are often calculated under statutory damages formulas. While damages can be awarded based on lost profits or unfair profits gained, with no real discovery available, plaintiffs have historically struggled to prove such damages and often are left with no choice but to take capped statutory damages. However, in 2016, China’s Supreme People’s Court published a clarification stating that if records needed to prove unfair profits are in the hands of the defendant, the court may order the defendant to disclose those records. If those records are withheld, the court has the ability to determine profits obtained due to infringement based on the plaintiff’s evidence and allegations. (In a subsequent blog post, RPX will provide an analysis that illustrates the range of damages and the typical amounts that have been awarded in patent trials over the years.)

Injunctive relief is also available and common in Chinese patent suits. Preliminary injunctions in China are similar to those in the US, in that the plaintiff must show a likelihood of success on the merits, that the plaintiff would suffer irreparable damages without a preliminary injunction, and that such an injunction would not harm the public interest. However, permanent injunctions are often granted in China if infringement is proven, whereas such relief has of course become rare in the US since the issuance of the Supreme Court’s decision in eBay v. MercExchange. In addition, unlike in most other countries, Chinese injunctions can be used to prevent exports out of China. A plaintiff can thus gain significant leverage by threatening to disrupt a defendant’s ability to ship its own China-manufactured products, or critical components, out of the country.

Another distinctive feature of the Chinese judicial system is that a court may order a defendant to issue a formal published apology, in a form preapproved by the court and to be printed in a relevant newspaper or trade publication. Apologies are not common in patent litigation. Although a published apology formally has no collateral effect, either domestically or abroad, the potential for using such a statement to gain an advantage in other proceedings remains largely unexplored.

In the coming weeks, RPX will provide even more perspective on patent litigation in China, including analyses on case trends over time, the range of damages awarded, injunction likelihood, and a comparison of outcomes between domestic and foreign litigants. For questions in the meantime, contact reports@rpxcorp.com.