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China court improvements increase foreign litigators’ confidence

While some companies continue to be wary of litigation in China, recent examples of foreign patent wins are convincing many that they can get sound and efficient judgments from the country’s courts

Corporate confidence is growing in China’s patent litigation system, particularly since Jaguar Land Rover’s landmark win over a Chinese competitor for IP infringement this year and the introduction of two dedicated IP courts.

According to in-house sources, there are still challenges when it comes to litigating in the west of China and some of the regional courts, but considerable improvements have been made to smooth the path to faster and sounder IP decisions.
“Enforcement mechanisms are getting much better in China,” says Stephan Wolke, head of IP and services at metals manufacturer Thyssenkrupp in Germany. “China has recognised that a fair and efficient IP system that foreign companies sometimes win in is good for the country.”
Maaike Van Velzen, head of IP portfolio at Philips in the Netherlands, adds that she has seen faster decision-making and high-quality judgments from the Chinese courts.
“There are things that still need to improve, of course, but our impression is positive – particularly with how damages and injunctions are handled,” she says.
Olivier Corticchiato, nutrition patent lead at Nestle in Switzerland, adds that the litigation system has improved significantly in China over the past decade.

“If we look back 10 to 15 years ago, China was an unknown and uncertain territory for many companies when it came to patent rights and whether they were useful or actionable – but that has changed.”


The good cases

Jaguar Land Rover won its case against the Jiangling Motor Corporation in March over the latter’s Landwind X7 sport utility vehicle, which the British car manufacturer claimed bore extremely similar resemblance to the Range Rover Evoque.
The victory was a first for the global car industry. Jaguar Land Rover’s global head of legal Keith Benjamin said the judgment from the Beijing Chaoyang District Court was a clear sign of the law being implemented appropriately to business investment in design and innovation.
Patent Strategy contacted the manufacturer’s press team about this judgment but they declined to comment.
While this case is one of the most recent and perhaps most prominent examples of a foreign company benefitting from improvements in China’s patent litigation infrastructure, there are many others.
Wolke at ThyssenKrupp says his company enjoyed an important win against the Tianda Group, a life sciences and manufacturing company, at the China Supreme People’s Court (SPC) in 2016.
Thyssenkrupp partially based its defence on the prior public use of a product that was delivered to the San Francisco International Airport in 2001. He says that this defence was chosen because of the ‘existing technology’ concept set out in Articles 22 and 62 of China’s Patent Law.
These articles could be – from Thyssenkrupp’s perspective – interpreted in such a way that when a company that has delivered the same product that is attacked by the patent infringement lawsuit based on a Chinese patent, prior to the alleged infringement action in China, to a customer with no confidentiality obligation outside of China, the Chinese patent-in-suit cannot be used against this company.
The company took the Chinese firm to court, showing that the technology was public knowledge as clearly illustrated in the drawings and outline in a Californian manual.
The case started in 2011 and Thyssenkrupp lost in two civil judgments. But in November 2016, the matter was finally decided by the SPC, which overturned both civil judgments and dismissed the plaintiff’s claim completely.
Wolke says that this case shows it can pay off when European companies have the endurance to take their cases to the last instance in China, and that foreign firms can get a fair trial and an objective judgment based on the facts of the case in the Chinese court system for patent infringement lawsuits.
The head of IP at a Netherlands-based factory tech manufacturer says that his one experience of litigation in China was also very positive. He explains that his firm sued a Japanese company for patent infringement in 2009 and the company filed invalidation proceedings in response.
The Japanese firm won at first instance but lost on appeal. The head of IP says he was extremely impressed by the decision because the courts found in his company’s favour for the right reasons and its arguments were legally sound.

“It was not just a matter of finding for us because of a dislike for Japanese companies. The reasoning in the judgment looked as though it could have come from the EPO.”


The bad cases

But while higher and city courts offer sound judgments on patent infringement matters, the same might not be said for the country’s regional courts.
One source from a Netherlands-based manufacturing company says that his company made the mistake of suing a Chinese competitor for patent infringement in the region where the infringement took place. He says that the infringing company was owned by a well-regarded family in that area, and that the judge in the matter urged the Dutch company to take the case to another area because he was compelled to find in favour of the defendant.
Adding to this example, the manufacturing head of IP says that it is still important to select the right place to litigate in China.
“Of course, that is true of anywhere,” he says. “There is a small town in Texas, for example, where practically all patent infringements matters are taken because the owners know that this court has juries that always find in favour of patent owners.”
The head of IP at a telecoms company similarly adds while the IP courts in Beijing and Shanghai have a very good knowledge of IP, companies might still find it tricky to litigate in certain regions, such as some in western China.

He says that there is still a certain amount of societal politics and protectionism over local companies in those places that will impede reasonable patent-related judgments.


Deterrent developments

Foreign companies may be able to get good patent decisions but the remedies offered may still leave little to be desired.
One source points out that there are limitations to the damages that companies can get from court proceedings in China. Injunctions are much more important to the company, but it can take time to get the remedy sought.
“The path to an injunction might only be a couple of days in places such as Germany – but that is not how it is in China. It is a matter of accepting that this remedy is not easily available there.” 
Balu Gupta, patent counsel at material solutions manufacturer Promerus in the US, agrees that damages are low in China, adding that colleagues in the past have told him that the money won “is only enough for a couple of dinners”.
“That is an exaggeration, of course. But the point is that while enforcement may work out, the damages may not.”
He adds that the system is getting better all the time, and that while the litigation infrastructure is a far cry from that of the US or Europe, it is still much better than in other emerging or recently-developed economies.
The price of litigation in China is not particularly high either. Van Velzen says the costs of Chinese litigation are manageable and not prohibitive.
Corticchiato at Nestle adds that the costs involved in invalidation proceedings at China’s IP office are similarly reasonable, especially when compared to those of the UK or US.
China was once considered to be the Wild West of patent litigation – but its court system has long since outgrown that reputation for foreign companies. The Jaguar Land Rover v Jiangling win was a huge boon for foreign litigator confidence in the region. It was not the first victory in an ever-improving system, and it will not be the last.

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