No compulsory license has ever been granted in China by the State Intellectual Property Office (SIPO), even though Chapter VI of the current patent law contains compulsory license provisions and China implemented the Doha Declaration through a National People's Congress decision on accession, as well as through SIPO's Measures for the Compulsory Licensing of Patents Relating to Public Health Issues ("Pharmaceutical Compulsory Licensing Measures").

A new amendment to China's patent law became effective Oct 1. The new amendment provides a more definitive statutory basis to compel compulsory licenses, implements the Doha Declaration into the patent law and contains new rules that restrict the general scope of compulsory licensing. The amendment makes it more feasible and likely for compulsory licenses to be granted in the area of pharmaceuticals under a new Article 50 and semiconductor technology under a new Article 52.

China has long provided a working requirement in its patent law. Under the current patent law, compulsory licensing can be granted where an entity is unable to obtain a license on reasonable terms and conditions within a reasonable period of time.

The new amendment, however, restricts the scope for compulsory licensing to the standard that the patentee has not exploited or has not sufficiently exploited the patent rights without any reasonable grounds (within three years since the date that the patent rights were granted and four years since the date of filing) or if the patentee exploits the patent in a manner determined to be an "act of antitrust".

Broader standard

The amendment has adopted a broader standard than that of the Pharmaceutical Compulsory Licensing Measures for issuing compulsory licensing of pharmaceuticals for any public health purposes.

That is, the compulsory licensing provided under the amendment is no longer limited just "for the treatment of contagious diseases", as under the Pharmaceutical Compulsory Licensing Measures. This theoretically opens up a broad range of pharmaceutical therapies to compulsory licensing.

In the event of a public health crisis, such as SARS or bird flu, the Chinese government is likely to grant a compulsory license to manufacture and export the required patented drugs.

For other nonpublic health matters (e.g., green technology), however, it remains to be seen if SIPO is equally willing to grant a compulsory license.

Recently, Chinese courts reportedly denied a request for injunction in a patent infringement case after the patentee prevailed. This could signal the beginning of court-mandated compulsory licenses in China.

Technology

In addition to health-related compulsory licensing, the amendment also provides that the Chinese government may grant a compulsory license on a patent involving semiconductor technology if the license for exploitation is limited to use for the purposes of public interest.

The amended patent law is now inextricably intertwined with China's anti-monopoly law. For example, Article 55 of the anti-monopoly law provides that "this law is not applicable to conduct by business operators to exercise their legitimate intellectual property rights in accordance with intellectual property laws and relevant administrative regulations; however, this law is applicable to the conduct of business operators to eliminate or restrict market competition by abusing intellectual property rights."

This very general language appears to present a concept similar to patent misuse under United States law, where, for example, a patent holder would not be permitted to seek to leverage its lawful monopoly IP rights to extend them beyond the proper scope of the patent.

Article 48 of the amended patent law stipulates that compulsory licensing can be granted to remove or reduce the negative effects of competition due to monopoly acts caused by the patentee exploiting the patent.

In other words, the issuance of a compulsory license is now a remedy for patent misuse. However, what constitutes patent misuse in China is yet to be defined. China may look to the United States and Europe for guidance when dealing with patent misuse.

Prior art defense

China has a split patent litigation system, with infringement determined by the courts and invalidity challenges heard initially by SIPO's Patent Reexamination Board.

Therefore, patent infringement and invalidation proceedings often run parallel to each other.

If the infringement proceeding progresses more quickly than the parallel invalidation proceeding, this could be rather disadvantageous to defendants, especially when the only viable defense is practicing what is in the prior art.

While Chinese courts can stay the infringement proceedings pending the results of invalidation proceedings, they are not required to do so. Stays in design patent suits or utility model patent suits are granted more often than not, but most invention patent infringement suits are not stayed.

The current patent law does not explicitly identify practicing prior art as a defense to a claim of patent infringement. In practice, however, Chinese courts have allowed the prior art defense. The amendment now codifies such judicial practice.

While it is not clear from the amendment whether an accused infringer must practice exactly what is in the prior art, Chinese courts are likely to follow the approach taken by the Chinese Supreme People's Court in a 2001 advisory opinion concerning such defense.

According to the Chinese Supreme People's Court, the prior art defense can be established by showing that the accused product or process is identical to or obvious in view of the prior art.

The authors are lawyers for the US law firm Jones Day. The opinions expressed are their own

(Source: China Daily)