Defensive strategies in patent infringement litigation in China

Success in patent litigation depends on a variety of factors

Success in patent litigation depends on a variety of factors: obviously important is the patentee’s investment in and protection of technology, but equally important, for both parties, is the depth of understanding of the patent system and mastery of the rules of litigation.

In recent years there has been a rapid increase in the number of domestic patents granted in China and, not surprisingly, a dramatic increase in the number of patent infringement actions.

This article concentrates on the defence of patent infringement actions and, in particular, the strategies that should be considered.

Pre-litigation

Monitor competitor’s patent rights

A regular watch of major competitors’ patents should be undertaken and, where appropriate, steps taken to avoid infringement or seek invalidation.

Patent invalidation requests

Where a patent affects the industry as a whole, consideration should be given to filing a patent invalidation request jointly with other enterprises in the same industry. There have been many successful cases of this kind in China: joint action has enabled effective competition with large foreign enterprises.

Whether it is advisable to wait until the patentee has instituted patent infringement proceedings, will depend on the circumstances.  In many cases, however, it will be preferable to commence invalidation proceedings first. This enables the potential defendant to retain the initiative and avoid the likelihood of the infringement action proceeding to judgment without account having been taken of the invalidity defence.

Collection and preservation of evidence for prior art or prior use defence

Evidence of prior art and prior use may include patent and non-patent literature, prior public use or sales, etc. Because the court’s requirements for prior use evidence are strict, it is important to maintain proper records.  Complete R&D filing systems should be established, with design sketches, drawings, product prototypes with specific dates, and evidence of manufacture, and promotion of the products or method.

Patent protection where appropriate

In seeking to avoid infringement, an enterprise may come up with patentable technology.  If so, it is important to apply promptly for protection.  In this regard, it is well to remember the utility model or ‘small innovation’ patent. Often, multinational companies apply only for basic innovation patents, leaving room for others to apply for dependent patents.  Small and medium-sized enterprises should take advantage of these spaces or gaps.  Doing so will strengthen their hand in subsequent patent litigation or cross-licensing negotiations; it may also turn them from defendants to plaintiffs.                                                      

Responding to a threat of litigation

Seek non-infringement declaration

Upon receiving a lawyer’s letter, an enterprise should consider carefully the other party’s rights, the strength of its own defence, the commercial impact of the claim against it, and the possibility of a commercial solution.

Where appropriate, it should make the first move and institute a non-infringement declaration. It should be noted, however, that the rules relating to non-infringement declarations vary from place to place.  It is important to ensure compliance with local rules.

Assess the likelihood of preliminary remedies

Pre-litigation remedies include preliminary injunctions, evidence preservation and property preservation orders. These can have a very serious impact on business operations. As they can be granted ex parte there is often no opportunity for the defendant to be heard. It is, therefore, important to be prepared: advice should be sought on the court’s power to grant such orders and senior managers and executives should be fully informed so that they will not be taken by surprise.

Take the initiative to seek commercial solutions

Patent litigation is time-consuming and expensive.  Commercial solutions should always be considered.  Given the high cost of litigation, most patent owners will be willing to negotiate. 

Fighting back – confrontation during litigation

Exhaust procedures to gain more time

There are a number of legal procedures that can be relied on by a defendant to gain more time for preparation of its defence.

  1. It can challenge jurisdiction and appeal the decision to a higher court.  New time limits will then be set for the filing of evidence.
  2. If the patent litigation concerns a utility model or design, and the defendant files an invalidation request within the prescribed period, the court will usually adjourn the main action.  It may, in practice, do so even in litigation involving invention patents. Invalidation proceedings may also serve to reduce the scope of protection of the patent concerned

Appease important customers

Patent litigation will be of concern to customers: they may require an explanation the of the infringement issue and an indemnity.  Sometimes they will place future orders on hold - exactly what the patentee wants. Some plaintiffs send letters to the defendants’ customers informing them of their potential liability.  Faced with this situation, the defendant should take the initiative: contact important customers, obtain legal opinions on possible risk, and, where appropriate, undertake to assume any potential liability.

Take unfair competition action

If a plaintiff, before, during or after litigation, makes misleading remarks that are likely to unduly influence the defendant’s clients, or knowing that its patent is invalid, commences infringement proceedings, the defendant could consider filing a separate unfair competition action in a favourable venue, thus paving the way for the subsequent reconciliation.

Defending the infringement claim

The first step is to seek to limit the scope of protection, relying on restrictive interpretations given by the patentee in the file wrapper or established during patent invalidation proceedings, or on flaws in the patent document.

A non-infringement defence should then be considered, with other backup plans such as a prior art or prior use defence. A non-infringement defence requires the enterprise to distinguish the technical features of its product from those covered by the patent and to demonstrate that the differences are material.

Where a non-infringement defence is not possible, the defendant should look to a prior art defence, identifying, if possible, at least one piece of prior art that covers all technical features of the alleged infringing technology. If that is not possible, it should seek a combination of one piece of prior art and common general knowledge, or even a combination of several pieces of prior art. The more pieces of prior art being cited, however, the lower the chance of the defence being successful. If it does succeed, a prior art defence will have the effect of restricting the defendant to the original use.   Where a prior use defence is not available, the defendant may rely on prior art, but it is more difficult to establish.

There are, in practice, other available defences, but because they are common to all forms of civil litigation we have not dealt with them here.  These include challenging the other party’s capacity as plaintiff, identifying flaws in the evidence, and relying on breaches of various statutory requirements and time limits.

Consider liability for infringement

It is important to consider the issue of liability at any early stage.  The major types of liability include an injunction to cease the infringing activity, and payment of financial compensation. Ceasing infringing activity means ceasing manufacture, sale or use of the infringing product or use of the infringing process.  If the products are key products, the defendant, along with its research staff and patent lawyer, should work out a plan and, where possible, alter some features of the infringing products at the lowest possible cost.

The appropriate level of financial compensation should be argued strongly.  The Patent Law is specific as to the methods of calculating compensation and there are steps a defendant can take to ensure that the amount of compensation is as low as possible.

For more information, please contact GAO Min.

This article was first published in a longer form by China IP Magazine.