China Newsletter - June 2019 by HLK

China newsletter June 2019

The Developing Face of Intellectual Property in China Written by Kirwin Lee

Imagine better â&#x201E;˘

A message from the author Welcome to the June edition of Haseltine Lake Kempner’s China newsletter, and the first newsletter since Haseltine Lake merged with Kempner & Partners. 2019 has been a big year for us as we have not only gone through a merger, but we are also celebrating an important milestone in our company’s history, which is 10 years in China. In 2009 the doors to our representative office in Guangzhou, China opened for the first time and since then we have seen terrific growth in the work we undertake in China as more and more Chinese clients enter into European markets. In this newsletter we take a look at some of the key technological developments and legal changes affecting IP in China today, as well as providing an update on Brexit and what this currently means for IP protection in the future. We hope that you enjoy this newsletter and if you have any questions please feel free to contact us. Kirwin Lee Senior Associate

Update on Samsung and Huawei in China (settlement) In January last year I wrote an article examining Huawei’s win against Samsung in China regarding the 4G standard-essential patent lawsuit. This concerned Huawei suing Samsung for using its technology illegally and resulted in the Intermediate People’s Court in Shenzhen ruling in Huawai’s favour, ordering Samsung to pay them 80 million yuan followed by a separate ruling by a Shenzhen court which blocked the manufacture and sale of the technology in question by Samsung in China. However, despite the case being settled in China, the parties, were also battling in courts in the United States (where Samsung had countersued), where the fight continued.

signed a join motion to the US appeals court asking it to pause the proceedings as they have entered into a settled agreement. At last it seems that this feud, which has been ongoing since 2016, is finally over with the parties reaching an agreement. It’s currently unclear what the exact terms of the settlement are.

The trial was set to start in September where Samsung would aim to prove that Huawei had breached its FRAND licensing obligations. However the proceedings have now halted as the two firms have 2

Haseltine Lake Kempner | China newsletter June 2019

Key Aspects and Changes to China’s new Regulations on Interim Injunctions in IP Cases The new judicial interpretation regarding injunctions in IP disputes in China officially came into effect on 1 January 2019. The new rules, herein referred to as “the Provisions”, provide some clarification on the existing procedures for applications for interim injunctions in IP cases. Since the establishment of the specialised IP Courts and Tribunals in China the courts seem to be increasingly willing to use injunctions as a remedy for protecting IP rights. The newly implemented Provisions are therefore important in shedding light on the existing procedures and standards. In this article we aim to summarise a number of noteworthy aspects and changes of the Provisions. Types of Rights Holder who may File for a Preliminary Injunction In the new Provisions, a licensee’s standing in terms of interim injunction applications is clarified. Exclusive licensees are allowed to independently file for an interim injunction before a judgment, ruling, or arbitral award takes effect through submission to a court. A licensee under a sole licensing contract may submit an application for an interim injunction on its own, provided that the licensor does not submit such an application. Finally, those that are granted a normal non-exclusive licensing contract may, upon being expressly authorised by the rights holder to file a lawsuit in its name, submit an application to the court on its own for an injunction. The “Urgency” Requirement The Provisions provides for circumstances that are classified as “urgent situations” where the absence of an immediate interim injunction will significantly impact on the interests of the IP owner. These include: imminent illegal disclosure of the applicant’s trade secret, imminent harm to the personal rights of the applicant, the disputed IP rights are about to be disposed of illegally, existing or imminent infringement in timesensitive situations, existing or imminent 3

infringement of time-sensitive popular TV/ radio programmes or movies, and other situations which require an immediate interim injunction to prevent substantial harm to the applicant’s interests. The last situation essentially provides the courts discretion to accept any circumstances which compels an applicant to apply for an interim injunction. Nonetheless, it is still crucial to submit the application as early as possible, considering the strict interpretation of the “urgency” requirement by the courts. Factors Considered by the Court in Granting a Preliminary Injunction The factors outlined the Regulations appear to be similar to the test generally applied by US courts in determining whether to issue a preliminary injunction.

Haseltine Lake Kempner | China newsletter June 2019

These factors are: • The factual and legal basis for a preliminary injunction, including the stability of the applicant’s underlying IP rights. In practice, in assessing the validity of the IP rights, the courts would consider the type of IP rights, whether the IP rights have undergone substantive examination before grant, whether the IP rights are challenged, and whether the ownership of the IP rights is in dispute, etc. • Whether the absence of an interim injunction will cause irreparable harm to the legitimate interests and rights of the applicant. “Irreparable harm” is a key factor in granting injunctions. Compared to US courts, which typically conclude that the requirement of “irreparable harm” is met once “likelihood of success on the merits” is established in IP cases, the threshold for establishing irreparable harm in China is traditionally higher. Circumstances that constitute such “irreparable harm” include the defendant’s conduct causing unrecoverable harm to business reputation or personal rights, the defendant’s conduct causing “uncontrollable infringement” and causing significant increase to the damage to the applicant, and the defendant’s conduct resulting in evident decrease of market share in the relevant market. • Whether the harm suffered by the applicant as a result of the absence will exceed the injury suffered by the respondent as a result of enforcement of injunction. • Whether implementation of the injunction will compromise the public interests. For example, for pharmaceutical patents, public access to drugs and drug safety 4

would be the primary determinants in this aspect. The Requisite Bond Amount The applicant must post a bond in an amount that is equivalent to the loss which the defendant could suffer as a result of the implementation of the interim injunction, including reasonable loss of sales proceeds, storage expenses of the products, and other justifiable expenses. Moreover, if the bond amount is found to be inadequate during the enforcement of the interim injunction, the court may order for additional security to be paid by the applicant or limit the injunction. Previously, different Chinese courts may apply different rules with regard to the amount of bond. For example, some courts in China may require only 20% of the amount of damages claimed in the litigation depending on circumstances. Article 11 of the Provisions is therefore significant in bringing about consistency in terms of the amount of bond required across courts and judges in China, as well as with many other jurisdictions (e.g. Germany). Wrongful Application for Interim Injunction The Provisions introduced the concept of “wrongful application” where the preliminary injunction will be found to have been granted in error. An example of a “wrongful application” situation is when the court ultimately finds that the defendant’s conduct does not constitute IP infringement. If a wrongful application was filed, the defendant can file a lawsuit to claim compensation. It appears that this concept was likely to be introduced so as to encourage the courts to adopt a less stringent attitude in their assessment of interim injunction applications, and to disincentivise IP owners from applying for interim injunctions without carefully assessing the stability of the asserted IP rights and the likelihood of infringement.

Haseltine Lake Kempner | China newsletter June 2019

Current Practices in the Area of Blockchain Patentability in Europe and China As blockchain is increasingly being recognised as a disruptive technology that could revolutionise a wide range of industries including finance, logistics, and data services, it continues to be one of the hottest topics in IP in 2019. Blockchain patenting is rapidly taking off in global economies such as China and the US, and the number of patent filings in this area is expected to grow at an exponential rate in the coming years. To explore the implications of blockchain for patent applicants and stakeholders, the European Patent Office (EPO) held a blockchain patenting conference on 4 December 2018 at The Hague to discuss topics related to the challenges of searching blockchain and legal issues associated with blockchain, as well as how the EPO and other jurisdictions examine blockchain patent applications. This article aims to provide a summary of the key takeaways on blockchain patentability in Europe and China which were covered in dedicated sessions at the conference. Blockchain Patentability in Europe Blockchain inventions are regarded by the EPO as a type of computer implemented invention (CII). Mr. Koen Lievens, Operational Director at the EPO, pointed out that in order to provide further legal certainty on the examination practice of CIIs, the Guidelines for Examination at the EPO have been revised thoroughly over the past 3 years on the basis of the case law of the Boards of Appeal. The latest version of the Guidelines was published in November 2018, and the revisions in this version include important improvements on guidance with regard to the eligibility of CII. The newest revisions are seen as EPO’s attempt to establish a more harmonised and predictive approach across all computer implemented inventions. The changes in the new EPO Guidelines include useful information on how 5

the well-established “two-hurdle” approach for mixed-type inventions is to be applied to blockchain technologies. The first hurdle of the approach, which is the so-called “eligibility test”, requires the claimed subject matter to have a technical character. In practice, this is relatively easy to overcome by simply introducing a technical means, for example by amending from “a method of performing an algorithm” to define a “computer-implemented method of performing an algorithm”. The second hurdle is higher than the first, and requires

‘‘ China currently has the largest number of blockchain patents in the world’’ a technical contribution to inventive step. In the case where a claim includes a mix of technical and non-technical features, all features that contribute to the technical character would be taken into account for the assessment of inventive step. This includes seemingly “nontechnical” steps which contribute to the technical character of the invention. For example, a mathematical method step can contribute to the technical character of the invention if it serves a technical purpose (e.g. optimising load distribution in a computer network). G-VII 5.4.2 of the latest version of the Guidelines helpfully includes a number of workedout examples of applying the two-hurdle test. Moreover, new sections relating to mathematical methods and programs for computers have been introduced into the Guidelines, which set out in detail how

Haseltine Lake Kempner | China newsletter June 2019

According to Ms. Xinyi Wang of the China National Intellectual Property Administration (CNIPA), the patentability requirements in China largely mirror those of Europe in terms of novelty, inventive step, and sufficiency. Furthermore, similar to the EPC, Chinese patent law also requires claims to be directed to technical solutions to technical problems. For example, claims directed to technical improvements in a blockchain system would be allowable. technicality is assessed for these types of subject matter. Many believe that the new EPO Guidelines can also be useful in helping the patentability analysis and assessment of blockchain patents before the USPTO. In fact, this is exemplified by European patent EP 3125489 B1 (titled “Mitigating Blockchain Attack”) which was granted in 2017, and its corresponding US patent which was also granted in the same year a with largely similar claim set to its European counterpart. For this reason, US patent practitioners and stakeholders would fare well from reviewing the relevant sections in the new Guidelines closely. Blockchain Patentability in China China currently has the largest number of blockchain patents in the world, racing ahead of other countries such as the US and Japan. In 2017 China was the most active filer of blockchain patent applications, and by 2020 the country’s blockchain market is expected to reach 10 billion yuan (€1.3 billion). The nation’s blockchain industry can be categorised into three branches: upstream (e.g. mining rig and hardware), middle stream (e.g. data services), and downstream (e.g. financial service, medical service, energy industry) enterprises. As of 2018, commercial use in blockchain receives the most patent applications, followed by communication use and calculation use. 6

In China, claims related to improved blockchain related algorithmic methods per se are not excluded from patentability, as long as they are defined as being carried out by a computer or a device (akin to EPO’s “first hurdle” as explained above). In contrast, pure algorithms such as mining methods would typically be refused under Article 25, which prohibits inventions for “rules and methods for intellectual activities”. One of the major divergences between European and Chinese patent examination concerns the subjectmatter that would be regarded as being “detrimental to public interests” (which is equivalent to “matter contrary to “ordre public” or morality as stipulated in Article 53(a) EPC). This was demonstrated by way of a case study in the conference session, in which Ms. Wang explained that inventions related to virtual currencies or cryptocurrencies (e.g. Bitcoin) would be perceived as being detrimental to public interests for posing a potential threat to the stability of the nation’s financial and monetary system. Since its crackdown on cryptocurrencies in 2017, the Chinese government has maintained a relatively strict stance on the financial use of blockchain technology. Accordingly, claims covering the application of blockchain technology in the financial domain would unlikely to be allowed under Article 5 of the Chinese Patent Law which stipulates that inventions that “harm public interests” are not to be allowed.

Haseltine Lake Kempner | China newsletter June 2019

Brexit update Brexit- where are we? What has changed? What’s the position regarding EU trade marks and designs? By Michael Conway Brexit – Where are we? The European Union’s agreement to a further extension means the UK is scheduled to leave the EU without a deal on 31 October 2019, assuming no further extension is agreed, and that the Withdrawal Agreement negotiated with the EU is not approved by the UK Parliament, before then. What has Changed? Despite a lot of debate in Parliament, very little of substance has altered with the overall picture regarding Brexit for some time. Although Theresa May’s government negotiated a complete Withdrawal Agreement with the EU, in order to bring it into effect it must be approved by the UK Parliament. Parliament has rejected the Agreement and a parliamentary majority has not been found for any of the other possible Brexit options, including ‘no deal’. This leaves all options firmly on the table. The Position Regarding EU Trade Marks and Designs

• EUTM applications and re-filing in the UK. EUTM and RCD applications which are pending on exit day will not be automatically cloned. The applicant may, within nine months, file a new UK application which will retain the same filing (and priority) date as the EU application. • Proving use of UK TM registrations cloned out of EUTMs. If exit day falls during the proof of use period, any use evidence relating to a time after exit day must show use in the UK. If the proof of use period ended before exit day, use anywhere in the EU will be acceptable. • Lapsed UK registrations for which seniority was claimed into EUTMs. Where seniority was claimed from a UK trade mark registration into an EUTM, the cloned UK registration which arises after exit day will continue with the same rights (and same earlier filing date) as if the original UK registration had never lapsed.

105609

95943

The position in relation to intellectual property is, fortunately, clearer. The UK government has published its proposed draft Statutory Instrument to regulate the transfer of rights connected with EU trade marks into the post-Brexit trade mark regime in the UK. This includes commitment on the following: • Continuity of registered rights. EUTMs and RCDs which are registered prior to exit day will be cloned into UK trade mark or design registrations which will have the same filing, priority and registration dates. There will be no official fee. 7

Haseltine Lake Kempner | China newsletter June 2019

Continuity of rights. Under UK law, references to an EUTM or RCD in any document (such as a contract) made before exit day shall, unless there is evidence that the document is not intended to have effect in the UK, be read on and after exit day as including references to the cloned UK mark. Our Key Recommendation An EUTM application filed today will not be registered by end October. Until exit day in October, or agreement being reached confirming a transitional period (and later exit day), we recommend that clients dual file UK trade marks simultaneously with EU trade marks so as to obtain registered trade mark protection in the UK at the earliest opportunity. The situation is less critical for designs, as most EU designs filed today will reach registration before the

end of October. Nonetheless, many clients are also dual-filing designs in the UK and EU simultaneously. Practical Assistance To ease the cost burden, HLK is offering a 25% discount on our UK filing fees if we are instructed to file the same mark in the UK and EU simultaneously. We will also, on a no-charge basis, create records for: • the cloned UK registrations which will be created from registered EUTMs, and • potential UK applications to be based on pending EUTMs. This service will ensure the best position for our clients on Day One and help mitigate the effects of Brexit.

Did you know? China are credited with inventing many things we now use in everyday life and take for granted, for example loo roll. Did you know that the below were invented in China? • Whether you’re a ‘Gooner’ (Arsenal) or a member of the ‘Cider Army’ (Bristol City), you wouldn’t have a team to support at all if the Chinese hadn’t invented football way back in sometime around 1 BC. • A Chinese inventor invented the compass, with the first compasses being used in Feng Shui. • Paper, paper currency, paper cups, paper napkins and paper lanterns were all first invented in China.

Michael Conway Partner mconway@hlk-ip.com +44 (0) 117 910 3200

Daniel Chew Partner Head of Asia Group dchew@hlk-ip.com +44 (0) 207 611 7900

Li Min (Ellie) Chief Representative for China lmin@hlk-ip.com +86 (0) 20 2826 1916