v. stay of trial pending an invalidation proceeding

a. the patent invalidation procedure

in recent years, the patent invalidation proceeding has become a major battleground between foreign companies seeking to protect their inventions or designs in china and their chinese competitors seeking to ward off “foreign monopoly.” somewhat similar to the patent “re-examination” proceedings in the united states,  this procedure has assumed much more significance in patent infringement litigation in china. for such reason, this feature of chinese patent law deserves more attention and lengthier discussion than many others.

1.invalidation as an offensive weapon

an important way to protect a foreign company’s intellectual property rights in china, or an important aspect of their enforcement in china, is removing phony patents that were based on the foreign company’s patented or un-patented invention with little variation and obtained by the infringers for the sole purpose of shielding themselves from liability for infringement. they can easily obtain such phony patents because under chinese patent law, utility model patents and design patents applications only need to go through preliminary examination, not substantive examination. therefore, if a foreign company finds its inventions have been fraudulently patented by a potential or existing infringer in china, it should take affirmative actions to invalidate the patent.

  one example of how a foreign company utilized the patent invalidation procedure to protect its intellectual property rights is the philips case. a few years ago, the dutch electronic giant royal philips electronics found that a chinese company applied and obtained a design patent for an electric shaver that was based on philips’ design with slight alteration. the purpose of this filing was apparently to forestall the infiltration of philips’ products with this design into the chinese market. to deal with such infringement, philips filed an application with the board to invalidate the patent. philips actually filed nearly 20 patent invalidation applications between 2001 and 2002 and won all of them except one. in the one case where the board found the patent at issue valid, philips appealed the decision to the court and won. subsequently philips successfully stopped the infringement of its electric shaver design.[1]

2. invalidation as a shield

there is no provision in chinese law specifically giving a defendant in a patent infringement action the right to seek invalidation of the patent in dispute. such right is implied in a general grant in article 45 of the chinese patent law, which provides:

where, starting from the date of the announcement of the grant of the patent right, any entity or individual considers that the grant of the said patent right is not in conformity with the relevant provisions of this law, it or he may request the board to declare the patent right invalid.

under article 46, a patentee or an applicant for invalidation not satisfied with the decision of the patent reexamination board declaring the patent right invalid or upholding the patent right may, within three months from receipt of the notification of the decision, appeal it to a court.

b. stay of the litigation pending the outcome of the invalidation proceeding

1. chinese courts do not have authority to invalidate a patent

the provision in article 45 of the chinese patent law has very important implications for patent infringement litigation in china. as nearly half of the utility model and design patents issued by sipo will be invalidated by the board ultimately, [2] nearly all defendants in patent infringement litigation would raise invalidity of patent as an affirmative defense.[3] unlike their counterparts in the united states, however, chinese courts do not have authority to directly declare a patent invalid. only the board has such power as part of its authority for administrative review. courts merely have the power to affirm or reverse an administrative decision of the board on whether a patent is valid or not and they can do so only in an “administrative litigation (i.e. judicial review of administrative decisions). a most important implication of such a system is that when a defendant files an invalidation request during the course of a patent infringement action, what should the court do? or more specifically, should the lawsuit be stayed or continued while the invalidation proceeding before the board is still pending?

the patent law does not have any specific provision addressing this question. it is governed by provisions in the supreme court patent trial provisions. this document breaks down the stay issue into several situations and treats each differently.

c. the “stay scheme” set down by the supreme court patent trial provisions

1. in cases involving utility model or design patents

a. when the invalidation request is not made within the time limit for answering the complaint

article 8 of the provisions requires defendants in cases involving utility

model patents or design patents to file their request for invalidation within the time limit for answering the complaint (15 days after being served the complaint for chinese companies and individuals and 30 days after being served the complaint for defendants in foreign-related cases).[4] article 10 specifically provides that the people's court shall not stay the litigation where the defendant fails to do so, unless it finds it necessary to grant the application after review.[5]  

the reason for setting this time limit is that before the supreme court patent trial provisions took effect, many defendants in patent infringement litigation filed the invalidation request very late in the litigation and court proceedings were constantly stayed for a long time. in 1998 alone, there were over 2,000 patent infringement cases suspended and waiting in courts, some for as long as seven to eight years. to ameliorate this problem and afford the owners of valid patents more protection, the supreme court included the time limit provision in article 8 of the several provisions.[6] but it also include an “unless clause”to avoid unjust result caused by pure procedural reasons when a defendant who has a meritorious case to invalidate the patent but fails to file the request for invalidation within the time limit for various reasons.[7]

to further reduce unnecessary stay proceedings and delay of court proceedings, article 8 in its first clause also imposes a burden on the plaintiff in cases involving utility model patents to obtain a search report from “the patent administrative organ,” i.e. the patent office under sipo, when it commences the lawsuit.[8] this way, when a plaintiff knows for certain that its patent might be invalidated for lack of inventiveness, it might think twice in filing the infringement lawsuit. on the other hand, if the defendant knows with more certainty that plaintiff’s patent may sustain the challenge of invalidity, it may be more reluctant to file a request with the board.[9] the supreme court would like to apply the same requirement to other types of patent, but for lack of resources it had to limit it to utility model patents.[10]

b. when the invalidation request is made within the time limit for answering the complaint.

in cases involving utility model or design patents, generally the court would grant stay where the defendant does file the invalidation request with the board within the time limit for answering the complaint, except in the following situations: (1) where no technical documentation is found in the search report produced by the plaintiff that results in the loss of novelty or inventiveness of the patent for utility model; (2) where the defendant's evidence is sufficient to prove that its or his used technology has been known to the public; (3) where the proof or basis the defendant has furnished for requesting the invalidation of the patent right in question is obviously insufficient; or (4) any other circumstances where the people's court finds that the legal proceedings should not be stayed.

in a rare example involving a foreign defendant in patent infringement litigation in china, defendant compaq applied for and obtained a stay of the litigation pending the outcome of the invalidation proceeding it had initiated before the board.[11]

2. in cases involving an invention patent or a utility model or design patent that has been upheld by the board

generally, when the request for invalidation involves an invention patent, or a utility model or design patent that has been upheld by the board, the court may not stay the litigation. [12]

3.what should the court do when the plaintiff has applied injunction with bond posted while the defendant has requested stay of the litigation?

pursuant to article 12 of the supreme court patent trial provisions, in such a situation the court may simultaneously make the relevant ruling when deciding to stay the litigation.[13]

4. what happens when the litigation is not stayed but the board invalidates the patent after the court enters judgment of infringement?

but if no stay is ordered, and the court finds the defendant liable for infringement, what is the effect of a subsequent finding by the board that the patent is invalid? would the court “void” its judgment and the plaintiff be ordered to return any monetary award it has received from the defendant? the answer is no if the judgment is already enforced. under article 47 of the patent law, a decision by the board declaring the patent invalid has no “retroactive effect” on any judgment “which has been complied with or compulsorily executed,” or on any patent license or assignment agreement “which has been performed,” prior to the invalidity declaration.[14] as a restraint against frivolous patent infringement actions, however, the same article also provides that damage caused to other persons “in bad faith” on the part of the patentee shall be compensated.[15]

d. judicial review of invalidation decisions by the board

1. judicial review is frequent as stakes are high

while not all invalidation proceedings are initiated by defendants in the context of a patent infringement litigation, most of them are. whether they are or not, the stake is high for all those involved. this is illustrated by two recent cases.

judicial review of decisions of the board in denying or granting applications for invalidation of utility model or design patents is provided in article 46 of the patent law. that provision was added when the patent law was revised in 2000 in conformity with the requirement in article 32 of trips for judicial review of all decisions canceling or invalidating patents.[16] this represents an important step forward as in the past judicial review of the board’s decisions invalidating or upholding a patent only applied to invention patents , not to utility model or design patents.[17] there is an estimate that approximately 10%to 20% of the board’s decisions have been reversed by the courts. the ratio is higher for design patents, 20% of which have been reversed. one explanation for this is that the determinations involving design patents do not need much technical background and any competent chinese judge can handle them. in 2002 alone, for instance, several multinational companies filed appeals of invalidation decisions made by the board, an independent quasi-judicial agency under sipo. [18]

a.the pfizer and gsk cases

in july, 2004, pfizer inc. was stripped of a chinese patent issued in 2001 for its anti-impotence drug viagra, after it was challenged by chinese generic drug makers in an invalidation proceeding. pfizer indicated that it would appeal the decision to the court. six weeks later, glaxosmithkline (gsk) abandoned its defense in an invalidity proceeding before the board regarding its patent in china covering a key ingredient in its diabetes drug avandia. the proceeding was initiated by generic manufacturers in china. gsk stated that it had decided against defending the formulation patent on the ingredient rosiglitazone before sipo because it did not have a strong case. glaxosmithkline was granted the chinese patent on avandia in july 2003. avandia has been sold in the united states since 2000. the invalidation proceeding was filed by chinese drug makers sunway pharmaceutical co. ltd., taiji group, and zhejiang wanma pharmaceutical co. ltd. the challenge to the patent was based on the claims that the invention was not novel and already made public before being filed for patent in china. [19] 

b. the honda case

the honda case is an example of how a foreign company successfully wields off an invalidation attack from its chinese competitor. japan's honda motor co., ltd filed lawsuits against two chinese companies, shanghai feiling motorcycle co. and zhejiang huari co., accusing them of infringing its chinese design patent for a “mini scooter.” honda received the patent in 1994(chinese patent 93303569.1.) the two defendants filed an application for invalidation. the board decided in 2001 that honda's patent was invalid because a patent had already been issued for a similar design (chinese patent no. 92307683.2) and similar designs had been published in magazines and had been used in china. in december 2001, honda appealed the board’s decision to the beijing no 1 intermediate people's court. [20] in september 2002, the beijing no.1 intermediate people's court upheld the decision of the board. after a trial, the intermediate court found that the board was not erroneous in finding that the honda design had a visual appearance similar to the prior patent and was likely to cause confusion on the part of consumers. [21] but in the summer of 2004, the beijing people's high court reversed the no.1 intermediate court’s decision, finding honda’s patent different from the prior patent and therefore valid.[22] honda’s efforts finally paid off.

2. continuous stay of patent litigation while an appeal of the board’s decision is pending before a court.

usually the stay of the patent litigation, if any, ends when the board makes its decision to uphold or invalidate the patent in dispute, unless the court hearing the patent infringement case believes that, based on existing evidence, continuation of trial may conflict with the outcome of the administrative litigation concerning the patent. [23] in contrast, an infringement judgment entered by a trial court will be stayed when it is appealed to the higher court reviewing it. once the higher court affirms the judgment, there will be no further stay even if another appeal is made to the supreme court.

e. drawback and criticism of the stay system

              some commentators believe that there are several drawbacks in this system where courts do not have the power to invalidate patents directly: first, almost in all patent infringement cases, defendants would invariably file an application to invalidate the patent at issue. currently, most courts would stay the trial and wait until the patent reexamination board to complete the invalidation proceeding. as the board has a heavier workload than the courts, this would usually lead to the delay of the trial for the patent infringement proceeding. second, both the board and the courts would have to make their own independent determinations on the scope of the patent claims. it is an unnecessary waste of time and resources. third, the courts use a different standard to measure the scope of patent coverage than the board. the board compares the patent with prior arts while courts infringement cases compare the patent with the alleged infringing product. when the board construes the patent claims too narrowly and the courts do so too broadly, a prior art would not be found to anticipate the invention but the court would find the infringing product covered by the patent, leading to inconsistent results. fourth, the board is less experienced than courts in enforcing strict rules of evidence. many of its findings simply cannot be supported by competent evidence. the courts are much better equipped to handle such matters.[24] these drawbacks of the current system is best illustrated in the final result in the jie kang v wan ji case discussed above, where the board found plaintiff’s patent invalid half a year after the appeals court affirmed a huge award against the defendant in the infringement litigation.[25]