In Part I of our article entitled ?In China companies are ignoring utility model patents at their own great peril ? Part I? (our last posting), we discussed the importance of utility model patents in China through the illustration of a landmark intellectual property patent infringement case, Chint v. Schneider. In Part II we will provide 10 lessons to be gleaned from that case for every company doing business in China.
3.???????????????????? 10 Lessons to be drawn from Chint case about Chinese patents
(1) Abandon out-dated notion only Chinese are guilty of intellectual property infringement
Any Chinese observer will note that the speed with which China transforms itself is breathtaking and mindboggling. One such dramatic change is the growing awareness among Chinese about intellectual property rights protection. This is reflected in part by a dramatic rise in intellectual property related litigation cases in 2009, up some 40% from the previous year.
No doubt some of the plaintiffs in these cases were foreign elements but a vast majority of the plaintiffs in these cases were Chinese. Given this trend, it is imperative that people abandon the old notion that only Chinese disrespect intellectual property rights.? In fact, the chances are much higher in China that a foreign entity will be the defendant in an intellectual property related litigation case rather than a Chinese defendant.? The point is that a sound intellectual property strategy may only be created if stereotypes about market behaviors in China are eliminated.
(2)Monitor that your products are not infringing valid Chinese patents
The biggest lesson from Chint v. Schneider is that foreign companies must make certain their products are not infringing upon their competitors? patents registered in China, including utility model patents. Many foreign companies introduce to Chinese market products they have been selling for years in their home countries without first examining if there are any intellectual property infringement implications in China.
China is a ?first-to-file? country when it comes to patent protection, meaning even if you have been selling your products patented in the US for however many years, this fact affords you no legal protectionor legal immunity in China unless your products are also patented in China.? Schneider?s failure to do its ?homework? about whether it has legal footing on which to sell its products in China cost it dearly.
(3) Know your competitor?s intellectual property portfolio
A related point is that the first task in verifying potential patent infringement issue is by monitoring your competitors? intellectual property programs, including tracking competitors? patent application and registration in all three patent categories. The often cited adage by Sun Zi in The Art of War that ?knowing your enemy ensures you win every battle? may also be fitting for the purpose of gathering market intelligence on one?s competitors.
In the Chint case, had Schneider performed this due diligence it could have known that Chint had acquired patent rights for many of the circuit breakers in question as far back as 1999.And certainly Schneider knew of Chint well enough to commence a global litigation assault against Chint as early as 2004. ?Thus when Schneider began selling its products in China in 2005, it had done so either because it did not think Chint had the disputed circuit breakers patented in China or it did not care much.
(4) Prepare and collect prior art and prior use defenses
As discussed earlier, one way to attack a patent?s validity is to demonstrate that the patent in question does not possess novelty, one of the criterion for granting patents, because the technology embedded within the patent is existing technology or prior art.
Another defense against patent infringement is prior use. Relevant section of the Patent Law states summarizes this exception:
[W]here, before the date of filing of the application for patent, any person who has already made the identical product, used the identical process, or made necessary preparations for its making or using, continues to make or use it within the original scope only.
On this point, some legal observers argued had Schiender done a better job of documenting its prior use of the products in question, it could have very likely invalidated Chint?s circuit breaker patents by proving that technologies in Chint?s patents were already used in Schneider?s products.
In order to ward off or defend future patent infringement claims, it may be helpful to file one?s own technology with technology libraries once product becomes public or have one?s own products samples notarized. These methods show what technologies are embodied in products by a certain date to show prior public knowledge.
(5) Know the types of evidence used in Chinese litigation
Chinese courts do not practice evidence discovery where each litigant has the right to request documents relevant to the case from the other party.? This means it becomes vital to keep one?s own record and documentations, including documents relating to product development, testing and manufacturing, for possible future litigation.
(6) File invalidation claims
Contrary to US patent litigation practices where courts determine both patent infringement and patent validity issues-the former analyses evidence that patented technology are replicated in,and hence infringed by, the alleged products and the latter evaluate evidence of prior art-in China these two tasks are handled separately. Chinese courts are only empowered to determine if patents are violated and the PRAB, on application, is responsible for determining if patents granted by SIPO are valid by performing substantive examination on the patent in question.
In the Chint case, although Schneider failed to convince the PRAB that Chint?s various patents involved in the litigation are invalid, its action was nevertheless the correct approach.? By accepting to hear Schneider?sinvalidation application, Schneider was able to suspend the ongoing litigation unfolding at the Wenzhou Intermediate Court until a PRAB ruling. This suspension prevented Chint frommoving forevidence or property preservation measures while PRAB review is pending, a move that brought more breathing time for Schneider to gather its composure. (The invalidation application does not however suspend ligation involving invention patent).
Additionally, an invalidation challenge also presents a chance for a defendant to have another party to review a patent?s validity as PRAB and Chinese courts are known to have different understandings about patent law on several issues. Finally, there are a dozen grounds on which to challenge a patent?s validity.
(7) File your own patents in China, especially ones for utility model patents
The Chint case also reveals that whoever registers its patent first in China may have the complete protection of law. Unlike the principle in the US or Canada operating on the ?first-to-use? principle, China relies on the ?first-to-file? principle to protect applicants who files first.
Foreign companies whose home countriesare signatories to the Paris Convention for the Protection of Industrial Property (?Paris Convention?) may take advantage of the ?home country priority date? benefit conferred by the Paris Convention.? Essentially, if one files a patent application first in its home country, it may rely on that application date as the date of application for patent in anotherconvention signatory country if it decides to file patent for the same product in the other country. However, the second application must occur within one year of the first application in one home country.
(8) Consider expanding own patent portfolio to include more utility model patents
Explore the possibility of enhancing one?s intellectual property portfolio in China to include more utility model patents, for they are cheaper, faster and easier to obtain than invention patents. ?Utility model patents are mainly used for mechanical innovations involving minor improvements to existing products.
It is also possible to apply for invention patent and utility model patent for the same product simultaneously, but ultimately patent applicants must choose only one form of patent protection.
(9) Avoid plaintiff?s home court by filing declaratory judgment action in your home court
Another lesson from the Chint case is the importance of ?home court? advantages (or disadvantages if the court hearing the case is not a court in your home district).? A declaratory judgment action, available in China, is a preemptive response taken by alleged rights infringer in its home court to determine if it has acted legally relative to another party.? Typically, a declaratory judgment action begins after an alleged patent infringer receives a cease and desist letter and decides to ?clear the air? in its home court based on claims of non-infringement or patent validity. Once the action is accepted, the party sending the notice about possible patent infringement must appear in the court chosen by the alleged infringer, hence taking a possible future plaintiff out of its comfortable ?home court?.? A declaration action may be a pivotal strategy to avoid Chinese regional courts known to hand out questionable or high compensation judgments against foreign parties.
However, there is a rule that once the alleged infringer receives a ?warning? letter from the supposed rights holder, the former must reply with a letter requesting the rights holder to withdraw the ?warning? or sue.? If no response is received within 1 month after the rights holder receives the letter (or 2 months after the reply is sent), then the alleged infringer may seek a declaratory judgment.
10) Prepare to issue or respond to an evidence preservation order
Evidence or property preservation orders against a party may put the recipient in a hasty position as most companies in China are not trained to respond to such judicial order.? It may be helpful to train company staff about the scope and extent of responses required legally when answering such an order.? This will prevent a company from disclosing unsolicited and sensitive information. ?On the other hand, these orders may also be an effective tool to obtain vital evidence from your litigation adversary.
The suggestions provided highlight a common theme focused on prevention. Maybe, just maybe preventive measures could have diverted the legal battle between Chint and Schneider. As for the Chint case, ultimately the partiessettled their long running litigation saga in April 2009 through settlement, and Schneider agreed to pay 50% of the original judgment.
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