China’s Intellectual Property System: Important Changes For Medtech Companies

  • China
  • 11/12/2019
  • v

China has recently made significant strides in amending its intellectual property (IP) laws in a manner that provides substantial benefits and protections for medtech IP owners. As of November 1, 2019, China has taken another step in changing several aspects of its patent examination guidelines, along with the amendments to its trademark, trade secret, and unfair competition law. This LawFlash discusses these important changes to Chinese IP law and their implications for medtech companies.

UPDATES TO CHINESE PATENT EXAMINATION

The amendment to China Guidance for Patent Examination (Amended Guidance) took effect on November 1 and involves a series of changes that will alter the course of patent prosecution in China. Below we provide some of the key takeaways from the Amended Guidance that medtech companies should consider in their Chinese patent portfolio strategies.

Deferred examination for up to three years

While most applicants are eager to urge the examination process forward to obtain patents as soon as possible, medtech companies—especially in the early stages—must balance the desire to aggressively pursue issued patents with other constraints, such as financing or changes in product development. As such, medtech companies can benefit by controlling how quickly prosecution of their application proceeds.

The Amended Guidance enables an applicant to request deferred examination of its application for a period of one, two, or three years either (1) at the time of requesting substantive examination for invention applications or (2) at the time of filing the application for utility model and design applications. Applicants should note that there is no cost to apply for deferred examination. However, the notice on the Form of Substantive Examination Application updated in November 2019 by the China Patent and Trademark Office states that “the deferral period cannot be altered and the deferral application cannot be withdrawn once it is submitted.” Therefore, applicants should be careful in preparing and submitting the application for deferred examination.

As an important reminder, although applicants may delay examination for invention applications, the request for deferred examination does not delay publication of invention applications.

Patenting of inventions related to embryonic stem cells allowed

One of the significant changes under the Amended Guidance relates to the protection of embryonic stem cells. Inventions related to the use of human embryos were previously impermissible under Chinese patent law and denied for the reason of “violation of social morality.” However, medtech companies are now able to pursue patent protection for inventions that satisfy the “14-day rule”: a human embryo research limitation that permits research of human embryonic stem cells for a maximum of 14 days after the point of fertilization. Although the Amended Guidance does not permit in vivo development, this change presents a major opportunity for medtech and biomedicine companies.

Consistent use of applicant name in divisional applications, assignment documents, and power of attorney documents

Medtech companies must be wary of the new emphasis on applicant-naming requirements under the Amended Guidance. Often, whether through acquisition, merger, or other corporate events, medtech companies must develop and integrate new patent families into their existing patent portfolios. However, under the Amended Guidance, if the applicant named in a divisional application is different from the applicant named in the parent application, the divisional application will be considered to have not been filed ab initio. This incurable defect can be avoided by filing the divisional application in the name of the currently named applicant in the parent application (whether or not a name change has been recorded in the parent application). Further, medtech companies must also be wary of the requirement that the patent assignment bear the same signature as the power of attorney when the application is filed. The practice of having a single “company representative” that signs all assignment and power of attorney documents on behalf of the company is not as common in the United States as it is, for example, in Japan, China, and Korea, where company representatives may often use company stamps. In fact, given that the fast-moving world of medtech startups often produces high turnover in company leadership, medtech companies will need to be especially careful and, where possible, strive to maintain signatory consistency for formal documents.

Correcting the loophole of ‘unlimited divisional applications’

Under Chinese patent law, if the claims of a patent application are not directed to a single patentable or technical concept, a patent examiner should reject the claims as lacking “unity.” Pursuant to the Amended Guidance, with respect to a first divisional application where a notice of further division is issued by examiner ex officio or the examiner rejects the claims as lacking unity in an office action (collectively, unity rejection), the applicant may apply for a second divisional application only if the first divisional application receiving unity rejection (or the parent application of the first divisional application) is still pending. Otherwise, a second divisional application will not be permitted.

This is a change from the prior guidance, which allowed the filing of a second divisional application after a first divisional application received a unity rejection as long as there was a related, pending application in the patent family (co-pendency with the first divisional application was not required). Some practitioners considered that the prior guidance permitted the filing of unlimited further divisional applications. The Amended Guidance closes this perceived loophole and now requires that medtech applicants more carefully develop and implement strategies to pursue divisional applications in their patent portfolios.

Prioritized examination for key technologies

The Amended Guidance now makes it possible for medtech applicants to request prioritized examination if the technology (1) is related to the industry advocated by the government; (2) has a significant effect on national or public interests; or (3) has certain market demand. Generally, applications that concern green technology, electric automobiles, new generation of information technology, and biomedicine technology might fall into this scope. However, as health and medical issues become increasingly important to the Chinese government, medtech companies may benefit from the new opportunity to access prioritized examination. Generally, applications allowed to enter the prioritized examination queue should expect examination to begin within a period of months, not the current one- to two-year delay period.

Substantive issues can be discussed by calling the examiners

Prior to the Amended Guidance, telephone communication with patent examiners was only possible to discuss formal defects that were of minor significance and unlikely to cause misunderstandings. The Amended Guidance now enables examiners and applicants to discuss substantive issues, including their understanding of the claimed inventions and related prior art references, by telephone. This change allows medtech companies valuable access to Chinese patent examiners and facilitates improved advocacy in protecting critical technology.

Easier to initiate interviews with examiners

The Amended Guidance removed certain criteria that were previously necessary when initiating an examiner interview. For example, an applicant can now initiate an examiner interview (1) before the examiner has issued the first office action in the application; and (2) at times other than the time of issuance of the first office action or when the examiner offers an interview. As such, under the Amended Guidance, the patent applicant or the examiner can request or offer an interview at any time during the substantive examination proceeding. This important change allows medtech companies to more easily access Chinese patent examiners and will likely lead to improved communication and efficiency in the examination process.

Increased patent examiner burden of proof in showing that a claimed feature was “well-known knowledge in the art”

The Amended Guidance enhances patent examiners’ burden of proof when they issue rejections that are in any way based upon “well-known knowledge in the art.” Examiners are now required to provide evidence that supports their reliance on such “knowledge” while also being vulnerable to challenge by applicants if such evidence is not provided or is otherwise insufficient. Even in the absence of an applicant’s objection, the Amended Guidance still requires examiners to provide relevant evidence in the office action if they identify the key technical features of the invention as being “well-known knowledge in the art.” This important evidentiary requirement will certainly aid medtech applicants given that such technology often requires a specific, nuanced scientific or biological understanding that may be unappreciated or oversimplified by nonapplicants.

UPDATES TO CHINESE TRADEMARK, TRADE SECRET, AND UNFAIR COMPETITION LAWS
In addition to these changes to patent examination standards, medtech companies should also be aware of other changes to the trademark, trade secret, and unfair competition laws in China. Indeed, with a growing domestic need for a fairer market and international trade pressures, China has made important amendments to its IP laws regarding trademark, trade secrets, and other unfair competition. The following select points will be important for medtech companies to be aware of when protecting nonpatent Chinese IP rights.

Refusing trademark registrations if ‘bad faith’ is shown

The amended Chinese trademark law also took effect on November 1, 2019. The new trademark law will benefit medtech companies that have been targeted by others who filed “copycat” trademark applications without a genuine desire to use the trademarks in commerce. Under the amendment, such “bad faith” in a trademark application now constitutes practical grounds in all examination, opposition, and invalidation proceedings. The amendment also requires trademark agencies to reject an application if they know or have reason to know that the application was filed in bad faith; otherwise, the trademark agency may be subject to administrative or even criminal liability.

Enhanced statutory and punitive damage awards in trademark litigation

The amendment to the trademark law also enhances the upper limit of statutory damages from the previous limit of RMB 3 million (approximately $426,000) to RMB 5 million (approximately $710,000). Because a statutory damages award is widely applied in civil trademark litigations in China, brand owners are now expected to be even more active in protecting their brands.

In addition, the amendment increases the punitive damage award from up to three times the damage award that is determined by a statutory formula (i.e., determined by one of these three methods: (1) the trademark owner’s actual losses; (2) the gains of the infringer; or (3) the reasonable multiples of the underlying trademark licensing fee, if neither method (1) nor (2) works) to up to five times the damage award.

However, given that punitive damages were very rarely awarded in the past—punitive damages can only be awarded under a finding of malicious infringement or other severe conditions—China has also made additional amendments and judicial interpretations to make the punitive damages determination clearer and more effective. Medtech brand owners will certainly benefit from these additional limits and greater clarity when pursuing damages awards.

Changes to trade secret damage awards and the burden of proof

China also amended its anti-unfair competition law in April 2019 to strengthen the protection of trade secrets. Similar to the revisions of the trademark law, the amendment of the trade secret law increased the statutory damages award limit to RMB 5 million (approximately 710,000 USD), and prescribed punitive damages of up to five times the damages calculated by a statutory formula. As before, punitive damages can only be awarded under a finding of malicious infringement or other severe conditions.

The 2019 Anti-Unfair Competition Law also prescribed a shift in the burden of proof for establishing infringement of a trade secret. To prove trade secret misappropriation, a plaintiff must show that (1) the plaintiff owned a valid trade secret; (2) the information acquired, disclosed, used, or licensed by the defendant is the same as or substantially identical to the trade secret; and (3) the defendant used an improper means to acquire, disclose, use, or license the trade secret. Under the new law, the burden shifts to the defendant to show that it is using a different means that is not the trade secret. This change in the burden of proof will allow medtech companies to more closely guard their trade secrets in litigation, while making it more difficult for defendants to manipulate their way out of an otherwise valid trade secret claim.

TAKEAWAYS
These many changes demonstrate China’s commitment to evolving and improving its IP protection for medtech companies. As these changes are factored into portfolio strategies, medtech companies may thereby improve their effectiveness in achieving their goals in and out of the Chinese marketplace.