NPEs are targeting companies in China for monetizing their patents

With major Non-Practicing Entity (NPE) quietly adopting Chinese litigation as part of their monetization strategies, Chinese government is now believing that social economy has developed to a stage where it should be driven by innovation and thus providing strong judicial protection on intellectual property (IP).  

Unlike systems in US or Europe, China has its special system on IP rights judicial protection. Litigation in the court is not the only judicial way to enforce the patent right. Administrative authority can also handle the patent infringement dispute as well.

In article 60 of the Patent Law of PRC: “If a dispute arises as a result of exploitation of a patent without permission of the patentee, that is, the patent right of the patentee is infringed, the dispute shall be settled through consultation between the parties. If the parties are not willing to consult or if consultation fails, the patentee or interested party may take legal action before a people’s court, and may also request the administration department for patent-related work to handle the dispute. If, when handling the dispute, the said department believes the infringement is established, it may order the infringer to cease the infringement immediately; if the infringer is dissatisfied with the order, he may, within 15 days from the date of receipt of the notification of the order, take legal action before a people’s court in accordance with the Administrative Procedure Law of the People’s Republic of China. If the infringer neither takes legal action at the expiration of the time limit nor ceases the infringement, the said department may file an application with the people’s court for compulsory enforcement….”

In article 79 of the Rules for the Implementation of the Patent Law of PRC: ” The administrative authority for patent affairs referred to in the Patent Law and these Rules means the department responsible for the administrative work concerning patent affairs set up by the people’s government of any province, autonomous region, or municipality directly under the Central Government, or by the people’s government of any city divided into districts which has a large amount of patent administration work to attend to and has the ability to deal with the matter.”

According to the statics of December 2019 made by CNIPA, there are 14,285 IP disputations handled by the administrative authorities in the nation. Nearly 30% of the cases were in Guangdong province and zero (0) case in some provinces.

Regardless the loadings of each administrative authority, the implement rules for administrative in patent disputations rules that the case should be closed within 3 months when the case is put on record and in some special instance the case can be closed up to 4 months (Article 21). Comparing to the patent litigation that may take years, the implement rules are very time efficient and friendly to NPE.

Accordingly, NPE may enforce their patent in the administrative authority, and look forward to receive settlements, licensing fees or any other compensations in later negotiations.  

iPEL, one of the high-profile NPE from US, has announced in 2017 that they had raised more than $100 million to purchase around 1,040 patents from Huawei and ZTE as the basis for patent infringement cases in China.

In May 2019, iPEL’s subsidiary, Global Innovation Aggregators, raised four patent infringement disputes against Netgear (US-based company) in administrative authorities of the Beijing Intellectual Property Office (IPO) and Hefei IPO respectively using patents No. 2011103890196 (hereinafter ‘196) and 2007101180340 (hereinafter ‘340). These two patents are brought from Huawei and ZTE.

According to CNIPA’s website, the 340 case was invalided on 10 April 2020, and the 196 case is maintained its patent rights on 27 April 2020. However, the decision made by Beijing IPO on 28 May 2020, the accused products of Netgear are not infringing the 196 case. The whole proceeding took only about a year.

Noting that when the case has entered for invalidation in CNIPA, the IPO will stop its trial until the invalidation decision has been made.  In general, the Patent Reexamination Board takes 4 to 6 months to issue invalidity decisions.

Although Netgear has fended off iPEL assertions in China, it provided a clear picture that administrative enforcements which can be considered as a good tool for NPE to force the defendant to react. According to the current patent law above-mentioned, the patent rights owner has the right to choose whether the patent infringement dispute is handled by the patent administrative or the people’s court.

There’s no jury in patent infringement litigation in China, the timeline from filing to judgment issuance in the first instance generally does not extend beyond 18 months. In other words, the cost of litigation in China is more efficient and less costly.

In the past, the amount of patent infringing damage remedy in China is low in cases we heard. On 24 November 2019, the General Office of Communist Party of China and the State Council jointly released the Opinions Concerning Enhancing Intellectual Property Rights Protection. In succession, CNIPA announced in April 2020, which plans to amendment the law according to this opinion which explicitly in introducing punitive damages. The specified provision of punitive damages will be incorporated in the future patent law amendment.

Higher remedy or compensation will encourage NPE’s activity. With an increase in statutory damages incorporation of punitive damages and time efficient for both injunctions and adjudicates, it is expected that NPEs would boom in China in the next few years.  

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