Litigants used to have the freedom to withdraw patent validity cases in China. Now the Chinese Patent Office says no to this practice

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(Author: He Jing/Jiao Yuxin; Source: ZY Partners)

In correlation to the growing number of patent litigations, patent invalidity actions involving foreign companies are surging in China in last couple of years. Foreign companies are either defending the validity of their own patents or go after those patents that they think are threatening.

In the past, litigants sometimes find a way to settle their patent disputes and terminate the invalidity actions through withdrawing the requests.  This avoids any potential negative impact on the patent at dispute.

Apparently, the Patent Re-examination Board (“PRB”) of the State Intellectual Property Office (“SIPO”) in China was frustrated about this practice because the settlement could throw away months of hard work spent by the examiners.  So in the amended Implementing Regulations of PRC Patent Law, which was of effect since 1st February 2010, the PRB is now given the discretionary power to decide whether or not to terminate an invalidity proceeding, even if the applicant settles the invalidation case and requests to withdraw it.  Specifically, the rules stipulate that the invalidity proceeding shall not be terminated if the PRB is already at a position to conclude that the claims must be invalidated in entirety or in part.

Many practitioners have not fully noticed the impact of this subtle change, but it could dramatically change the outcome of the disputes.  A recent case Han Rong v. Zhao Dongke involving Chinese medicine composition well illustrates this point.

The case is related to Chinese patent No. 200510071079.8 which covers a Chinese medicine to cure arthromyodynia.  The applicant Mr. Han Rong filed a request to invalidate this patent which is owned by another Chinese individual Zhao Dongke on 20 May 2010 by citing a variety of evidence and arguments, including the disclosure made in the State Chinese Medicine Standard Collections issued by the State Drug Administration.  The PRB held the oral hearing on 29 September 2010 to review the facts and arguments.

Interestingly, at the end of October 2010, the applicant requested to withdraw the invalidity case and claimed that both parties had reached a settlement agreement.  The patent owner agreed to license its patent for free to a third party designated by the applicant.

The PRB panel rejected the request of withdrawal.  The PRB ruled that this case is subject to the amended Implementing Regulations because it was filed after the effective date of 1 February 2010.  The PRB also found that neither of the parties ever expressed the intention to settle before the end of the oral hearing.  The PRB ruled that the panel had conducted thorough review of the facts and the arguments and readily ruled the patent as invalid for lacking novelty and inventiveness.  Therefore, the PRB declined to accept the request.

 

This case demonstrates that litigants can not take for granted a settlement will be automatically accepted by the Chinese patent office these days.  The PRB will not indulge the litigants to withdraw invalidity cases at will.    From the perspective of public policy, the PRB believes that the termination of a case that has been fully reviewed will cause the waste of public resources and make the system inefficient.  On the other hand, the PRB probably believes it will produce more public good that a “invalid” pharma patent is officially declared as invalid. Particularly, in the area of pharmaceutical industry, the PRB could be sensitive to the impact of the settlement and does not want to see the same patent owner to sue other parties.

 

To practitioners and in-house counsel, it is worth keeping in mind the nuances in the invalidity practices. Any settlement plans must be fully thought out to minimize unpleasant surprises.