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China's new patent law: the big picture

The Fourth Amendment to China's Patent Law will become effective as of June 1st, 2021. The amendments strengthen patent protection in China, and will make the IP system more flexible and sophisticated.

Since the establishment of the patent system in China, the first three amendments to the Patent Law had basically maintained the rhythm of once every 8 years. This fourth amendment was longer in coming being made 12 years after the last one. During that decade plus, China entered a new stage of development and made major achievements by implementing an innovation-driven development strategy. The factors of production underpinning China’s development have gone through profound changes, and the IP system reflects that.

President Xi Jinping has repeatedly emphasised the importance of innovation in helping China achieve high-quality growth driven by domestic demand. Instead of relying too much on an export-oriented strategy to sustain China’s long-term economic development, the "dual circulation" strategy brings a new paradigm, with domestic circulation as the mainstay and domestic and international circulations reinforcing each other. Strengthening the protection of intellectual property rights will stimulate the innovation vitality of the whole society, creating a better competitive environment.

Quintuple damages and enhanced design rights should benefit rights holders

The new Patent Law has introduced punitive damages for serious wilful infringement – courts can award one to five times the amount calculated according to the losses suffered by the patent holder, the benefit obtained by the infringer or the multiple of the patent licensing fee. At the same time, the amount of statutory damages is increased, with the upper limit raised to Rmb 5 million (about $735,000). By increasing damages, the value of a valid patent right will inevitably rise and more money may be invested in R&D activities.

To solve the difficulty of plaintiff’s onus of proof in patent cases, the new Patent Law has put heavier burdens on the defendant. If the patent holder has done their best to provide evidence, but the accounting books and materials relating to the infringement are in the possession of the infringer, the court may now order the infringer to provide evidence that can prove damages, such as accounting books and sales records.

The new Patent Law also expands the relief measures that can be taken before filing a patent lawsuit, including property preservation and behavior preservation, and confers more power on administrative IP enforcement. So expect both the judicial route and the administrative route to be more effective in protecting rights holders' IP assets.

Design patents received special attention in these latest amendments. Designs have played a more and more critical role to China's businesses, from start-ups to Fortune 500 firms. To enhance design protection, and to meet the requirements of the Hague Agreement, the new Patent Law introduces the long-advocated partial design, and extends the term of a design patent from 10 to 15 years. Meanwhile, and for the first time, domestic priority for design applications has been added.

In terms of granting procedures, the new Patent Law allows the applicant to submit certified copy of the priority document within 16 months from the date of filing the first invention or utility model application.

Key measures to tackle abusive patent litigation

With the enhanced protection of patent rights, patent holders will be more willing to initiate patent infringement lawsuits. Some patent holders may even try to gain revenue through litigation. To strike a balance, the new Patent Law also set up some limitations.

For example, where the dispute of patent infringement relates to a utility model or design patent, the people's court or the IP administration may ask the patent holder to furnish an evaluation report of the patent right prepared by the CNIPA. According to the new Patent Law, in addition to the patent holder, the accused infringer may also proactively request an evaluation report of the patent right from the CNIPA and submit it in the dispute before the people's court or the IP administration.

The new Patent Law also makes it clear that the application for a patent and exercise of the patent right shall follow the principle of good faith and shall not harm the public interest or the legitimate rights and interests of others. This very general provision might be an important weapon against malicious patent applications and the abuse of patent rights.

The major plus: drug-related inventions

The pharmaceutical sector is set up to benefit the most from the new Patent Law.

R&D investment for each new chemical drug can be as high as $2.5 billion (figure from 2010), with the overall clinical trial success rate averaging only about 12% from 1995 to 2007, the lowest R&D output ratio among all industries. Further, it can take up to 14.5 years from drug discovery to market approval, and the number of patents for each drug is only a few on average. The pharmaceutical industry is highly dependent on patent protection.

The new Patent Law effectively extends the patent term for new drugs. It introduces a patent term adjustment (PTA), which is available for invention patents and is of great significance to pharmaceutical companies, as well as a patent term extension (PTE) for new drug-related patents to compensate for the time taken for review and approval of a new drug for marketing. The PTE may extend the patent term related to the approved new drug for a period of no more than five years, with the total effective patent term not exceeding 14 years from the marketing approval. The draft Implementing Regulations of the Patent Law propose that the patent holder shall submit to the CNIPA a request for PTA within 3 months from the date of the Notice of Allowance, or a request for PTE within 3 months from the date of obtaining marketing approval for the eligible patents of new drugs, preparation methods and pharmaceutical use.

The new Patent Law also introduces a patent linkage mechanism. Per the mechanism, during the drug review and approval process, a dispute arising between an applicant for drug marketing approval and the holder of a relevant patent right related to the drug, the registration of which is applied for, can be resolved in civil judicial proceedings or administrative proceedings before the CNIPA. The National Medical Products Administration (NMPA) may make a decision as to whether the approval of the relevant drug for marketing is suspended, according to an effective judicial decision.

The main purpose of the patent linkage system is to link the drug approval process with the patent infringement suit, to resolve patent infringement disputes as early as possible during the generic drug approval process, to protect the legitimate rights and interests of drug patent holders, and to reduce the risk of patent infringement that may occur when a generic drug is marketed.

The establishment of the PTE and the patent linkage system makes up for the shortcomings of the existing system, marking an overall strengthening of pharmaceutical patent protection in China which will certainly stimulate new drug R&D and promote pharmaceutical innovation.

Overall direction of travel is clear

In general, the amendments to the Patent Law are an inherent demand of China's economic development and should be read in the context of China's current stage of development and economic policy. Regardless of the interpretation, the main thrust of development marked by themes including "innovation-driven", "dual circulation", "opening-up" and "harmonisation" will not change.